Stock Market Predictions 2026: Will the Bull Run Continue?

After a year in which investors were plagued by rampant uncertainty, valuation concerns and the undefined future of AI, the market’s biggest reward in 2026 may be more clarity.

A big part of that could come from the Federal Reserve, which cut rates again in December, marking a third major bank rate cut of 25 basis points by 2025 and paving the way for better market conditions next year.

“You could end up with a very dovish Fed at the end of the year,” said Jason Blackwell, chief investment strategist at Focus Partners Wealth. “If they can build a consensus on the rate path, you can expect interest rates to continue to be low.”

Blackwell notes that lower rates — and, in turn, lower borrowing costs — are generally good for both consumer and corporate capital expenditures (CapEx), which also favor stocks.

But the Fed’s monetary policy is one of the few things that will change market performance in 2026. And while there are many reasons for investors to be optimistic, there is also reason to worry.

Stock market performance can depend on AI

Analysts’ 2026 year-end price target for the S&P 500, which runs the game, shows a range of tailwinds, including a potentially tight Fed and an expected pick-up in mergers and acquisitions, which could compete with headwinds like midterm elections and sour consumer sentiment.

Currently, the index is trading around 6,899. From advanced forecasts like Deutsche Bank’s price of 8,000 to forecasts like HSBC’s 7,500, Wall Street largely expects the index to end 2026 in the green.

But since it was the big theme of 2025, no single factor could impact the performance of the S&P 500 next year like AI.

“It’s very easy to build a pilot around AI. It’s really hard to get it to scale. So if 2024 and 2025 were an AI CapEx story, 2026 becomes a ‘show me’ story,” Blackwell said. “What we really want to see… is that the adoption of AI is tangible and leads to productivity improvements and benefits improvements.”

If those developments are successful, AI could act as a tidal wave that lifts all boats, Blackwell said. But that will require the involvement of corners of the market that have missed the AI ​​rally in the past two years, such as healthcare and industry.

Morgan Stanley analysts share that belief. The investment bank’s 2026 outlook noted that “companies and economies are likely to benefit from AI-related benefits,” adding that it’s “an unusually positive thing.” [fiscal, monetary and deregulatory] The policy mix allows markets to shift the focus from larger global concerns to asset-specific issues – particularly those related to AI investments.”

But concerns about higher rates remain. On Dec. 1, Yahoo Finance reported that analysts at Wells Fargo see AI growing beyond its current state of technology-led growth. Still, they warned investors that, despite the enthusiasm, AI could still be a bubble.

How prices, inflation and average conditions could affect the stock market in 2026

Another theme likely to carry over into 2026 is President Donald Trump’s tax policy, which could continue to have a major impact on S&P 500 components that are sensitive to changes in consumer spending.

In November, a University of Michigan consumer survey showed that sentiment was 29% lower than a year ago.

The survey also highlighted expectations for next year’s inflation of 4.5%, which is a sharp increase from the current consumer price index of 2.7% and well above the 2.2% that the National Bureau of Economic Research determined would have been the CPI if the president had not implemented his aggressive trade policies.

“With the economy slowing down… we’re not in line with the consumer choice industry as prices rise and low-income consumers continue to struggle,” said Doug Beath, global equity strategist at Wells Fargo in November.

Blackwell says Trump may be more wary of prices in 2026 since it’s an election year, though that may not be enough to bolster the market.

Since 1957, the average annual return of the S&P 500 is 10.54%. According to data from the US Bank, in the 12 months preceding the midterm elections, the index’s average return is 0.3%.

The good news: Long-term, investors should remain optimistic

While annual market performance is an important factor in predicting stock performance, one year remains a relatively short-term measure. However, investors have reasons to remain optimistic about equity returns in the medium to long term.

“It’s really easy to paint bad situations,” Blackwell said. “But whether you’re looking at AI or the Fed’s reforms, we think investors are well-positioned to enjoy upside-down, high-probability scenarios.”

In particular, he warns against putting money aside because of fears about a possible market downturn. Data shows that over the past 30 years, investors who missed the 30 best performing market days would have seen 83% lower returns.

“Missing an important meeting is arguably more damaging than sitting through some volatility during the year,” Blackwell said. “Stick to the long-term view and be patient.”

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