Updated 10 min read
It’s that time of year when Wall Street’s top strategists tell clients where they see the stock market heading in the year ahead.
The strategists followed by TKer have year-end S&P 500 targets ranging from 7,100 to 8,000. This implies returns between 3.3% and 16.4% from Friday’s close.
Following three consecutive years of above-average gains, some of these targets may seem aggressive. But historically, targets tend to assume 8% to 10% returns, consistent with the midpoint of this year’s predictions.
Before we move on, I’d once again caution against putting too much weight into one-year targets. It’s extremely difficult to predict short-term moves in the market with any accuracy. Few have ever been able to do this consistently. Also, the market rarely delivers an average return in a given year.
DataTrek’s Nick Colas has pointed out that the standard deviation around the mean annual total return for the S&P 500 is nearly 20 percentage points! In other words, the S&P could return 20 percentage points more or less than the long-term average and still be “consistent with historical norms.”
With that in mind, here are some of what’s driving Wall Street’s views on the stock market for 2026:
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Revenue should benefit from economic tailwinds: While economic growth isn’t expected to be spectacular, it should be bolstered by fiscal stimulus from the One Big Beautiful Bill Act (expected to add 0.9% to GDP), easier monetary policy as the Federal Reserve continues to cut rates, trade policy that’s more friendly than 2025, and more spending in AI capex. (Of course, some sectors are expected to do better than others, but we’re not going to get into that level of detail here.)
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There will be some economic challenges: Inflation is expected to remain above the Fed’s 2% target rate. And labor markets are expected to remain cool as companies focus on keeping costs down by turning to AI for increasingly complex tasks.
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Profit margins are expected to get fatter: Analysts expect already-high profit margins to get even higher in 2026. Importantly, most sectors are expected to see profit margin growth. Since the pandemic, companies have adjusted their cost structures aggressively. This has come with strategic layoffs, consolidated office space, and investment in new equipment, including efficiency-enhancing tools powered by AI. These moves are resulting in positive operating leverage (i.e., the degree to which costs move when sales move). Read more here.
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Earnings growth should be strong: The consensus calls for an impressive 14% earnings growth in 2026. The “Magnificent 7” names are expected to lead the surge, but their growth rate is expected to cool from recent years. Meanwhile, earnings growth rates are expected to pick up broadly in other sectors. Also, it’s worth noting that earnings estimates tend to be pretty accurate.
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Valuations could stay high: The more bullish strategists argue today’s above-average P/E ratios are justified and should persist through 2026. Some even went as far as to use the word “bubble” to characterize their views. Read more here.
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But valuation could be a headwind: The more conservative strategists expect P/E ratios to contract from elevated levels. That means any returns in 2026 would be primarily driven by earnings growth.
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Beware midterm election years: Many strategists note that midterm election years tend to be the weakest of a president’s four-year term. CFRA’s Sam Stovall has the stats: “The intra-year drawdown for mid-term election years since 1946 averaged 18%, which was the highest of all four years of the presidential cycle. In addition, the S&P 500 experienced the weakest average annual price gain, at only 3.8% and rose in price only 55% of the time, versus an average gain of 10.8% and 76% frequency of advance for the other three years.”
