Wall Street in 2026: How will US stock market perform next year? AI boom, rate cuts & more in focus

In 2025, Wall Street recorded new highs.Investors did not pay attention to the worries about Trump administration’s massive tariffs and the AI bubble concerns. The S&P 500 benchmark skyrocketed 15% so far this year, till December 17. S&P 500, another benchmark however, lagged behind its 23% jump last year. The S&P 500 has done well over the ten years, giving traders a gain of around 13% every year, Mark Luschini investment strategist at Janney Montgomery Scott told CBS News. Tech heavy index Nasdaq Composite has gone up by than 18% in 2025, on the back of players like Alphabet, Microsoft and Nvidia. At the same time, Dow Jones Industrial Average has also gone up by over 13%. The big question is whether this rally will sustain its momentum into the next year. “I think conditions remain relatively fertile for stock prices to do OK overall,” Luschini said, adding “the big risk is that the whole AI narrative starts to lose a little of its viscosity.”

What will fuel the rally in 2026?

Several major forecasters remain upbeat about the outlook. David Lefkowitz, head of US equities at UBS global wealth management, expects the S&P 500, which closed Monday at 6,816 points to climb to 7,300 by June next year and reach 7,700 by the end of 2026. That would imply gains of roughly 15% over the coming year. JP Morgan also maintained an optimistic tone in a November research report, projecting the S&P 500 to rise between 13% and 15% next year on the back of strong corporate earnings growth, with that momentum extending into 2027. Analysts say a fresh round of earnings growth is likely to be a key driver of markets in 2026, especially within the technology sector. BofA Global Research expects overall earnings to expand at a mid-double-digit pace next year. “Multiple expansion and earnings growth both pushed the S&P 500 up 15% this year,” the firm said in its market forecast, cited by 2026. “In 2026, earnings will do the lift.” The AI boom is also expected to continue fuelling equities. Capital spending by major technology firms, including Alphabet, Amazon, Meta, Microsoft and Oracle, is projected to approach $520 billion in 2026, according to Jeff Buchbinder, chief equity strategist at LPL Financial. Such investment is expected to support not only tech stocks but also industrial companies supplying equipment for data centres. Beyond AI-linked names, some analysts see the rally broadening across the market. Bret Kenwell, a US investment and options analyst at eToro, said all 11 sectors of the S&P 500 could rise next year. “That’s something we haven’t seen,” he said. “If it happens, it’ll have been five years since we’ve seen it.” Financial services stocks may also perform well. Adam Crisafulli, head of Vital Knowledge, and Luschini both pointed to banks, which have traded strongly this year amid a more relaxed regulatory environment and increased merger and acquisition activity. Monetary policy could provide an additional boost. Kenwell said a softer stance from the Federal Reserve may support markets, particularly as President Trump is expected to nominate a new Fed chair before Jerome Powell’s term ends in May. “It’s kind of a when, not if, rate-cut situation with the Fed,” Kenwell said. However, expectations are for rate cuts to slow. JP Morgan forecasts one more cut in January, followed by an extended pause. The bank added that further easing could see the S&P 500 push beyond 8,000 points in 2026. Despite the optimism, artificial intelligence remains the biggest source of uncertainty hanging over markets. AI and tech stocks have driven much of this year’s gains, with the so-called “Magnificent Seven” delivering earnings growth far ahead of the rest of the index. That surge has been matched by heavy capital investment in data centres and related infrastructure, CBS reported. “Robust demand for cloud services and data center capacity shows no signs of slowing,” Janus Henderson portfolio manager Jeremiah Buckley said in the firm’s 2026 outlook on capital investment. Even so, concerns persist that enthusiasm around AI could cool, triggering a market correction. Vanguard, in its 2026 outlook, said US technology stocks should retain momentum due to continued investment and earnings growth, while cautioning that “risks are growing” amid widespread optimism. Crisafulli noted that tech stocks have historically moved together, but that pattern began to fracture in November. Alphabet shares jumped 14% following the launch of Google Gemini 3, even as the broader Nasdaq declined. He said this divergence highlights a potential challenge for investors next year. “It’s not so much the bubbles bursting,” he said. “It’s more just people looking at it in a more nuanced way.” Volatility, analysts warn, is still likely to make an appearance. After months of steady gains, markets could face periods of consolidation or modest pullbacks, Kenwell said. “When we look at 2025, it was a good reminder that volatility is in play, and that’s something that certainly can be back in the cards in 2026,” he said.