Despite nervousness over labor market and AI, analysts expect earnings to improve in 2026

BlackRock, the world’s largest asset manager, ran an online survey in early December asking respondents whether attractive returns for risk assets would continue for a fourth straight year in 2026. Respondents overwhelmingly signaled in the affirmative, choosing the most bullish option available by just under 59%. 

That poll, likely composed largely of retail traders, is surprisingly mirrored by most Wall Street analysts as well. The S&P 500 projections for 2026 obtained by FXStreet span from Wells Fargo’s low at 7,200 to Oppenheimer’s high of 8,100. The average of 17 year-end estimates is 7,580 or 11% above the prominent index’s current 6,820 level. This means that Wall Street’s brightest analysts expect returns above the S&P 500’s historical average of 8% in 2026.

Though bearishness pervades many discussions due to a fragile labor market, somewhat frothy valuations, and renewed skepticism around the so-called AI bubble, the easiest direction is still up. And the reason for that is in large part due to a man named Donald Trump. 

Yes, I’m being serious.

S&P 500 2025 Performance: Seven consecutive months of gains follow Trump tariff turmoil

The first year of Trump’s second term was wildly volatile to say the least. 2025 got off to a decent start in January before China’s DeepSeek released a new AI chatbot that shook the very core of Silicon Valley’s big tech names. This led the post-election euphoria to revert to a near 7% slide in the S&P 500 by the end of March. Then Trump’s Liberation Day announcement of stiff tariffs took the market by surprise, and suddenly the index found itself down over 17% YTD in the first part of April. 

But famously, Trump TACOed (Trump Always Chickens Out) and paused the tariffs, leading the S&P 500 to begin what would turn out to be a run of seven straight months of gains (maybe even more if December brings a rally by New Year’s).

Nothing could stop the AI train that rattled ahead with headline after headline of new massive capex spending on the continued AI data center buildout. Not Trump’s scary ~150% tariffs on China and that nation’s retaliation that eventually led to a trade deal. Not the longest government shutdown in US history, which lasted from October 1 to November 12. And not a major revision to US hiring data that saw the April 2024 to March 2025 figures revised lower by 911,000 jobs. 

With only days to go before year-end, the S&P 500 has returned over 15% YTD. With all that noise, I’m quite pleased that my stock picks from last year turned out to be a success on average. Here are my picks from last year’s 2025 outlook:

• Alphabet (GOOGL): +61% YTD
• CVS Health (CVS): +74% YTD
• BYD (BYDDY): +7% YTD
• Merck (MRK): -1% YTD
• RingCentral (RNG): -15% YTD

Equal-weighted portfolio: +25%

Comparison with S&P 500: +10%

What to expect for the S&P 500 in 2026

Growth

I’m not feeling like a contrarian this year. While bears point to rising unemployment (which just reached 4.6% in November), the Sahm Rule tells us that a recession is only likely when the unemployment rate rises quickly over a three-month period. Based on the available data, the recent hiring weakness is not quick enough.

And while the S&P 500 is trading at about 28 times next year’s earnings, above its 23X average since 1990, it’s hard to argue that the level is outlandish. 

This is because earnings are projected to grow at a faster rate in 2026 than in the year prior. While 2025’s Q4 data hasn’t arrived yet, it looks likely to hit the 10% consensus.

Wall Street expects 2026 S&P 500 earnings to surge 14%. And with growth like that, why would the index shrink? Goldman Sachs estimates US GDP growth will rise from 1.5% in 2025 to between 2% and 2.25%.

Interest rates

And there’s the interest rate landscape. President Trump has been busy badgering the Federal Reserve (Fed) to lower interest rates all year, and from this perch, it seems to have worked. 

The central bank cut interest rates in July, October, and December this year — for a total of 75 bps of cuts. On top of that, outgoing Fed Chair Jerome Powell said the Fed will begin buying back $40 billion worth of US Treasuries per month, a policy that should lead to lower long-term interest rates. From experience, whenever the Fed cuts interest rates while the stock market is near its all-time high, there is a heavy tendency for the S&P 500 to rally over the following 12 months. 

Additionally, the market is predicting 50 bps of further cuts in 2026 as well. 

President Trump is also expected to name a more malleable Fed Chair by May after installing Stephen Miran on the FOMC in September. More allies on the central bank’s main policy board means that the tilt should remain dovish despite ongoing worries of inflation getting out of whack. And lower interest rates in general also increase the value of future cash flows, so these lower interest rates should also increase the multiples that many stocks trade at.

More stimulus, less tariffs

But what many traders are forgetting is that the Trump administration has two more tricks up its sleeve. First, Trump’s Big Beautiful Bill features retroactive tax cuts that will allow many US taxpayers to receive much larger tax refunds in the early months of 2026. This is because most taxpayers are continuing to pay higher rates from the previous tax regime. A good chunk of this additional return that may surge above $100 billion in extra refunds will find its way into the stock market, boosting asset prices.

The second policy is Trump’s goal of sending tariff stimulus checks to all Americans. After all, he needs a policy win ahead of the November Congressional election, and his party retains a majority in both Houses of Congress. Additionally, polls show that Americans are feeling the pinch due to rising consumer inflation and heavy income inequality, so just one bad jobs number should be enough to make the tariff stimulus policy easy enough to pass through Congress.

As StoneX’s Vincent Deluard said recently, “What Congressman is going to run against [the stimulus in an election year]?”

And then there’s the possible end to his tariff policy. The Supreme Court is expected to rule on Trump’s controversial tariff policy sometime in the first half of 2026. Oral arguments already took place in November, and the questioning from the bench’s conservative judges leads most experts to expect a harsh ruling against them. This event should spur a rally in the market as it reduces another barrier to earnings margins.

Bonus depreciation

As part of Trump’s One Big Beautiful Bill Act, passed in mid-2025, companies have at their disposal 100% bonus depreciation. This means that corporations can immediately write-off the full cost of most capex and investments.

The law ended the phasedown of depreciation rates from his prior 2017 tax bill during his first term, making the 100% rate permanent. This is why the hyperscalers are happy to spend massively on data center construction since the policy allows them to immediately write it off their taxes rather than doing so incrementally over many years. 

This is the major reason why it makes sense for AI capex to continue apace at such a massive scale. While 2025 is projected to see global AI capex spending likely exceed $1.5 trillion, business advisory Gartner projects spending to eclipse $2 trillion in 2026. Most of that spending will go to US companies in the S&P 500.

S&P 500 technical outlook for 2026

This is where it gets interesting. On the weekly chart, if we draw a top trendline from the February 2020 high through the December 2021 high, we see that it gives the S&P 500 a ton of headroom at its current juncture. It sure looks like the index could top out at 8,000 or even 8,200.

This is pretty much where Oppenheimer gets its 8,100 call from for 2026. The bet is that the index wants to finish this rally before climbing down. Or rather that the bubble we’ve all been hearing about is not fully inflated yet. 

Another good sign is that the consolidation in the index over the past three months has supplied bulls with a solid near-term support at 6,550. The weekly chart demonstrates tests of this level in September, October and November. And that tells us that the medium-term support might be more solid than we think.

And the Relative Strength Index (RSI) has eased off overbought levels in the past two months, trading at 61 for the time being. This tells us that momentum remains strong in the stock, and looking at past performances over the prior two years, suggests that overbought RSI levels (those above 70) shouldn’t scare us away.

My favorite S&P 500 stocks for 2026

The primary theme of my picks this year involves the return of value stocks. I view 2026 as a time for solid companies that have fallen on hard times to catch up on their lagging multiples. This is because big tech has been quite confident in 2025, and investors will be taking profits and rotating toward safer plays. 

This maker of graphic design software has collapsed due to the threat of AI. The only catch is that this threat can’t be seen much in the data. Adobe is expected to grow Earnings Per Share (EPS) by 12% next year and revenue above 9%. That might not sound exciting, but it is when the stock trades at just 14 times forward earnings. That’s a PEG ratio of just 1.2, and Adobe is trading at a P/E of less than half its five-year average. Time for a rebound.

The US’ largest private health insurer collapsed in early 2025 due to higher healthcare costs but has slowly been rebounding ever since. The company is raising employer plans by 7% next year; Medicare Advantage plans by 10%; and ACA marketplace plans by over 25%. The return to form should spur the UNH stock price to easily end the year above $400, and I would be surprised if it returns anything less than 20%.

This Gold miner stands to benefit from the surging price of the precious metal. Central banks ploughed money into Gold throughout 2025 as President Trump’s tariff policy shook trust in US Treasuries. Investment banks predict that this heavy rotation away from US Treasuries and toward Gold will continue in 2026. Goldman Sachs predicts the precious metal will end the year at $4,900, while JPMorgan sees a path toward $5,055/Troy Ounce. Expanding margins should greatly enhance profitability at Newmont.

• Marvell Technology (MRVL)

Marvell has steadily seen its share price rise following the April 2025 lows, but the share price remains down about 24% YTD. 2026 is sure to be a major turnaround year for the semiconductor company as data center buildouts are projected to push EPS up by 80% YoY and revenue up by 42%.

Netflix might seem like a dangerous pick with the uncertainty over its proposed acquisition of Warner Bros. Discovery (WBD). Especially since Paramount has made a rival offer. But either way, the streaming king is set to grow EPS by 27% and is now trading 30% off its 2025 high. This stock almost always delivers, although technical traders will likely wait until they get a mid-$80s price tag to begin nibbling. 

Final thoughts

To be clear, the downside to this thesis is very real. The AI boom might vanish from some unforeseen event. Or unemployment might shoot up above 5%. But those issues have been with us for most of the past year, and there’s no reason that the market has to give in to bears’ dreams of glory in the next 12 months.

The narrative might offer a lot of enticing deliriums of economic collapse, and sometimes those are believable. But most years the S&P 500 produces gains, and right now the US has a president who is unusually sensitive to the stock market. He might not be effective at putting Americans back to work in factories, but President Trump cares deeply about helping his billionaire peers rake in more coin. And he does that by keeping asset prices high.