Wall Street Expects a Solid 2026 for Stocks. But the 'Risks Are Growing'

Key Takeaways Most experts expect another year of gains for the stock market in 2026. But they also say volatility could remain elevated as concerns about the AI rally persist. A resilient U.S. economy, as well as accommodative fiscal and monetary policy, are expected to support corporate profit growth. A softening labor market poses risk to the economy, but should also encourage more interest rate cuts from the Federal Reserve. It was a rollercoaster of a year on Wall Street. Most experts think the ride isn't over. The S&P 500 is on track to post a third straight year of double-digit gains in 2025.Michael M. Santiago / Getty Images The S&P 500 is on track to post its third consecutive year of double-digit gains, putting the benchmark index up more than 90% since the current bull market started in October 2022. Strategists expect 2026 to be another good-if more modestly so-year for the stock market. As of mid-December, the average 2026 year-end S&P 500 price target was 7,269, according to an LPL Financial analysis. That implies about 5 % upside from Tuesday's record-high close . “We expect a continuation of the recent past, where returns are solid, driven by rising earnings growth,” wrote Vanguard analysts in the firm’s 2026 outlook. “But let us be clear: Risks are growing,” especially in the tech sector, they wrote. Why This Matters to Investors Signs of caution have crept into Wall Street's stock-market forecasts for 2026. That's perhaps natural as the yearslong bull market has continued to run-but it may pay for investors to look under the hood at their reasoning, which includes concerns about the AI trade and the health of the U.S. economy. Investors “need to remain prepared for periodic episodes of market volatility,” says LPL Financial CIO Mark Zabicki. Sudden shifts in government policy and high levels of stock market concentration made this year an especially volatile one, and Zabicki expects that trend to continue. Here are the major debates that are likely to dominate Wall Street in 2026. Can the AI Rally Last? A debate is humming on Wall Street about whether the artificial intelligence business is in a bubble characterized by unreasonably high stock valuations and seemingly unbridled infrastructure investments that may not pay off. According to Bank of America, this year’s tech IPOs posted their best first-week performances since the Dotcom Bubble of the 1990s , to which today’s market is frequently compared. Investors, they wrote, are also “exhibiting a historically strong buy-the-dip response,” a possible sign that FOMO is winning out over prudence. On the flip side, the companies making the largest AI investments have more robust earnings and cash flows than their equivalents in the 1990s, which bulls say makes the AI boom more resilient to economic shocks. AI may be a revolutionary technology, but “the rules of economics and finance still apply,” wrote analysts at Lazard Asset Management. Lenders-who became a more important part of the AI story this year-need to be repaid, and investors...

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