What a year it’s been so far. YTD, the S&P 500 is up 9.58%, and the Nasdaq is up 14.6%. And the year is not even half over yet.
What a difference a couple of months can make.
The Middle East crisis sent stocks tumbling.
But then a month later, the ceasefire was announced. The worst-case scenario was discounted. And stocks quickly rebounded.
Even though a lasting peace deal has yet to be reached, the market has moved on from the conflict.
While the turnaround caught many people off guard, and underinvested, it shouldn’t have.
From the very beginning, we had been saying that the war-induced volatility would be short-lived. That geopolitical conflicts and events usually only have a short-term impact on the markets. And that over the last 40 years of geopolitical shocks, markets usually bounce back quite fast.
And here we are.
The market has shifted its focus to the resilience of the economy and soaring earnings.
For those who wished they would have taken better advantage of the recent rally, the good news is that it looks like there’s a lot more upside to go.
History Repeats Itself
Last year saw the S&P 500 gain 16.4%. That was on top of 2024’s 23.3%, and 2023’s 24.2%.
The historic AI tech boom has been leading the way.
And it’s reminiscent of the dot-com tech boom in 1995-1999 when the market surged by double-digits each year for 5 long, glorious years in a row, resulting in a 220% increase for the S&P, while plenty of individual stocks were up several hundred percent to several thousand percent.
I believe we could see the same thing again now.
And so does legendary trader Paul Tudor Jones. In an interview just the other week, he said the AI-driven bull market still has “another year or two to run,” and compared it to the late 1990’s tech boom.
That has been my sentiment all along, and comports with my expectation that we see 5 years in a row of double-digit market gains, just like we did back then.
This year (2026), would be year 4, while 2027 would be year 5. But nobody says it has to stop there. With AI being touted as the most transformational tech breakthrough ever, it could very well last much longer.
And it will be one of the key drivers for stocks for years to come.
A recent comment underscoring the AI trade came from AMD CEO Lisa Su, who characterized the demand for AI as “insatiable,” and said her company alone could grow by 35% a year for the next 3-5 years because of that. In fact, she said the AI market is “faster than anything we’ve seen before.” And she predicted the AI data center market could grow to “$1 trillion” by 2030.
A resounding outlook for the scale of AI.
Here’s a few more, by NVIDIA CEO Jensen Huang:
“AI is the most powerful technology force of our time.”
“AI will revolutionize every industry, from healthcare to transportation.”
“We are at the beginning of a new computing era.”
And while it transforms the world as we know it, it also has the potential to transform one’s portfolio.
But in addition to the ongoing AI boom, there’s a myriad of other reasons to expect another year of big gains.
Continued . . .
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A Productivity Boom Is Underway Too
One of the latest Productivity and Costs reports by the Bureau of Labor Statistics (BLS), showed nonfarm business productivity rising at a 2.8% annual rate in Q4’25, well above expectations for 1.9%. It also raised Q3’s rate up to 5.2% from the originally stated 4.9%, making it the strongest quarterly gain in 5 years.
What’s noteworthy is that productivity growth typically slows in the late stages of expansion as capacity tightens and incremental gains are harder to extract. But it accelerates at the beginning of a new growth phase when new technologies are adopted, and businesses unlock efficiencies that weren’t previously possible.
That’s why people are comparing it to the late 1990’s. Productivity jumped back then due to the technology gains from the internet boom.
And we could be seeing the same thing now thanks to the technology gains from the AI boom.
The pattern is clear, as productivity jumps, broader economic expansion follows. And the current above-trend productivity gains are another marker for potentially big growth ahead – for the economy and the market.
The Earnings Outlook Is For Growth
Let’s also not forget that earnings are the main driver of stock prices.
And it’s pointing to strong growth.
Q1’26 earnings season is nearly over. But the results have been stellar, and is on pace to show a 24.0% EPS growth rate.
Q2’26 earnings season is forecast to show a 21.3% EPS growth rate.
Q3’26 is forecast at 18.2%.
And Q4’26 is forecast at 20.1%.
Wow!
These numbers are nothing short of spectacular.
Once again, earnings are the key driver of stock prices.
And that’s why it looks like there’s a lot more upside to go for the market.
Small-Caps Are Also On The Rise
The bull market rally, now in its fourth year, is broadening.
Tech is still a big driver. And will be for years to come. But other industries are breaking out as well. And categories.
That includes small-caps.
While small-caps lagged the S&P in the first half of the year last year, they outperformed in the second half. And small-caps, along with mid-caps, are leading the indexes in 2026, so far.
In fact, the small-cap Russell 2000 is up 15.4% YTD, with the mid-cap S&P 400 up 11.0%.
Last year’s rate cuts definitely helped. And will continue to do so. As will the expected ones later this year and next.
It’s true that all-sized borrowers see relief with lower interest rates. But since small-caps tend to have a larger proportion of debt than their bigger counterparts, and often borrow at less favorable terms, the rate cuts we’ve seen (and expected to see), should have a sizable impact on small-caps.
Additionally, the budget bill that passed last summer, which included additional tax provisions for corporate America, not the least of which is the 100% immediate expensing of capital expenditures, will also have a positive impact.
Especially since small-caps are typically in the earlier part of their growth cycle. Those tax provisions should allow them to spend/invest more money, accelerate their growth plans, and get the entire tax benefit in year one.
I think we’re on the cusp of a small-cap renaissance.
But note: that expensing, which should have a sizeable impact on smaller-cap companies, also benefits large-cap companies too – like Microsoft, Alphabet and Amazon, that have invested significant amounts in their AI and data center buildouts. And they too will get the immediate tax benefit of that, without having to wait 5, 7, 15, and in some cases 39 years.
And that too will help fuel the ongoing AI boom.
Do What Works
So, how do you fully take advantage of the market right now?
By implementing tried and true methods that work to find the best stocks.
For example, did you know that stocks with a Zacks Rank #1 Strong Buy have beaten the market in 29 of the last 38 years (a 76% win ratio) with an average annual return of nearly 24% per year? That’s more than 2 x the S&P, including 4 bear markets and 4 recessions. And consistently beating the market year after year can add up to a lot more than just two times the returns.
It also killed in 1995 with a 52.6% gain; 1996 with 40.9%; 1997 with 43.9%; 1998 with 19.5%; and 1999 with 45.9%. It was also up in 2000 by 14.3% while the S&P was down.
Did you also know that stocks in the top 50% of Zacks Ranked Industries outperform those in the bottom 50% by a factor of 2 to 1? There’s a reason why they say that half of a stock’s price movement can be attributed to the group that it’s in. Because it’s true!
Those two things will give any investor a huge probability of success and put you well on your way to beating the market.
But you’re not there yet, as those two items alone will only narrow down a field of 10,000 stocks to the top 100 or so. Way too many to trade at once.
So, the next step is to get that list down to the best 5-10 stocks that you can buy.
Proven Profitable Strategies
Picking the best stocks is a lot easier when there’s a proven, profitable method to do it.
And by concentrating on what has proven to work in the past, you’ll have a better idea as to what your probability of success will be now and in the future.
Of course, this won’t preclude you from ever having another losing trade. But if your stock picking strategy picks winners more often than losers, you can feel confident that your next trade will have a high probability of success.
Here are a few of my favorite strategies that have regularly crushed the market year after year.
New Highs: Studies have shown that stocks making new highs have a tendency of making even higher highs. And this strategy proves it. The alignment of positive price action and strong fundamentals creates all the necessary conditions to see these stocks soar to even greater heights. Over the last 26 years (2000 through 2025), using a 1-week rebalance, the average annual return has been 39.6% vs. the S&P’s 8.1%, which is 4.9 x the market.
Small-Cap Growth: Small-caps have historically outperformed the market time and time again. Often these are newer companies in the early part of their growth cycle, which is when they grow the fastest. This strategy combines the aggressive growth of small-caps with our special blend of growth and valuation metrics for explosive returns. Over the last 26 years (2000 through 2025), using a 1-week rebalance, the average annual return has been 42.4%, beating the market by 5.2 x the returns.
Filtered Zacks Rank 5: This strategy leverages the Zacks Rank #1 Strong Buys, and adds two time-tested filters to narrow the list of stocks down to five high probability picks each week. Over the last 26 years (2000 through 2025), using a 1-week rebalance, the average annual return has been 45.4%, which is 5.6 x the market.
The best part about these strategies (aside from the returns) is that all of the testing and hard work has already been done. There’s no guesswork involved. Just point and click and start getting into better stocks on your very next trade.
Where To Start
There’s a simple way to add a big performance advantage for your stock-picking success. It’s called the Zacks Method for Trading: Home Study Course.
With this fun, interactive online program, you can master the Zacks Rank in your own home and at your own pace. You don’t have to attend a single class or seminar.
Zacks Method for Trading covers the investment ideas I just shared and guides you to better trading step by step, plus so much more.
You’ll quickly see how to get the most out of the proven system that has more than doubled the market for over three decades. Discover what kind of trader you are, how to find stocks with the highest probability of success, and how to trade them so you can consistently beat the market no matter where stock prices are headed.
You’ll get the formulas behind our top-performing strategies suited for a variety of different trading styles.
The best of these strategies produced gains up to +98.6% in 2025 while the S&P 500 gained +17.5%.¹
The course will also help you create and test your own stock-picking strategies.
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Thanks and good trading,
Kevin
Zacks Executive VP Kevin Matras is responsible for all of our trading and investing services. He developed many of our most powerful market-beating strategies and directs the Zacks Method for Trading: Home Study Course.
¹ The individual strategies mentioned herein represent only a portion of the ones covered in the course.
