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2025 was the third consecutive year of double-digit gains for the S&P 500, the Dow Jones Industrial Average and the NASDAQ Composite. Importantly, the bull market in equities was not confined to the U.S., with most major international markets participating with handsome gains. We think 2026 could be another positive year for investors, but with the possibility of one or two intermediate corrections along the way.
Our enthusiasm for 2026 primarily stems from actions taken in 2025 as the U.S. rotates from the austerity of tariffs to the stimulative effect of fiscal and monetary policy. Included are $150B in additional tax refunds in early 2026, $200B in tax cuts for factories, cap goods and R&D, additional Federal Reserve rate cuts, expansion of the Fed balance sheet, foreign investment, and the potential for significant financial deregulation. Deregulation itself could drive down bond yields and mortgage rates, which would jumpstart the moribund housing market. Inflation continues to ebb, allowing consumers to benefit from easing prices. Our biggest concern remains employment. A tax refund does little to help someone without a job, but with the Federal Reserve pivoting, credit channels for small businesses should reopen and contribute to increasing employment.
Rarely has so much economic stimulus stood ready to influence an economic cycle, a fact that has not been lost on those who forecast economic activities and corporate profits. Consensus forecasts call for U.S. GDP growth of 3.5% in 2026 and a 15% increase in S&P 500 earnings. Both are above long term trends while inflation is falling.
The flip side of this rosy scenario is that there are many more unknowns and the world is increasingly becoming a more dangerous place with military conflicts and domestic violence spreading. Voters do not like this, and we would not be surprised to see a split Congress by the end of this year, one factor which may lead to a pullback in the market this year. In the final analysis, however, it is the direction of corporate profits and interest rates that determine the level of equity prices, which leads us to expect another positive year.
January 2026
PLEASE NOTE: Unless otherwise stated, the firm and any affiliated person or entity 1) either does not own any, or owns less than 1%, of the outstanding shares of any public company mentioned, 2) does not receive, and has not within the past 12 months received, investment banking compensation or other compensation from any public company mentioned, and 3) does not expect within the next three months to receive investment banking compensation or other compensation from any public company mentioned. The firm does not currently make markets in any public securities.
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