Wall Street expects market gains in 2026 despite lofty valuations

Wall Street’s hot streak might be cooling off. After three years of double-digit gains, financial experts say 2026 could be a lot different.

The big stock indexes just finished their third straight year of impressive returns, but things are getting complicated. Many companies look overpriced, and the economy’s future isn’t as clear anymore. There are still good reasons to be upbeat, but some market watchers aren’t sure stocks can keep rising this fast.

Experts warn the winning streak may be hard to match

“We probably have an OK market, but certainly not what we’ve seen in the last couple years,” said Mark Hackett, chief market strategist at Nationwide.

The S&P 500 climbed 16% last year. A strong economy, fresh interest-rate cuts, and all the buzz around artificial intelligence pushed the benchmark to 39 new records in 2025. The Dow Jones Industrial Average was up 13% while the Nasdaq composite jumped 20%.

Big banks still think the party continues. Bank of America expects the S&P 500 to reach 7,100 by the end of this year—a 3.7% gain from where 2025 closed. JPMorgan Chase says 7,500. Goldman Sachs predicts 7,600.

That kind of across-the-board confidence makes some investors nervous. The S&P 500 has surged roughly 80% from the start of 2023 through New Year’s Eve. That’s a crazy pace that’s tough to keep up under almost any circumstances.

“It behooves investors to at least offer a little skepticism when there is such a broad consensus that everything will go well,” said Steve Sosnick, chief strategist at Interactive Brokers.

This rally is getting old by Wall Street standards. If the S&P 500 rises in 2026 for a fourth year in a row, it would be the longest such streak since 2007, when the benchmark completed a five-year run. Looking back through the index’s history, there have only been five streaks of four or more consecutive years of gains, according to Dow Jones Market Data.

The December jobs report is coming soon, which will give investors their next real look at how the economy’s doing. Big banks, including JPMorgan Chase, Wells Fargo, and Citigroup, will also start reporting earnings in the next few weeks.

Last year’s rally went way beyond stocks. Gold and silver had their best year since 1979. Bonds saw their best showing since 2020. Individual investors jumped back into speculation, creating a new class of meme stocks and driving options trading volumes to records again.

Lower interest rates should help the market this year. The Federal Reserve penciled in one quarter-point cut for 2026, and some expect President Trump’s pick for the next Fed chair after Jerome Powell’s term expires in May will lean more dovish. Tax cuts are also poised to boost corporate coffers.

Warning signs flash as prices climb too high

But there are warning signs that prices have run up too far, too fast. Bitcoin finished last year below $88,000 after sliding more than 30% from its record above $126,000 set in early October. Many of the meme stocks that saw huge swings higher have come down just as quickly.

Some analysts are concerned that the huge gains in artificial-intelligence stocks—which have fueled much of the market’s gains over the past three years—have limited room to run further. A lot of people believe AI will be transformative, but they worry the promised returns on multibillion-dollar investments between the major AI players will be difficult to realize. That could weigh on future gains.

Valuations are looking rich. Companies in the S&P 500 are trading at 22 times their expected earnings over the next 12 months, above their 10-year average of 19 times. Around half of the valuation metrics for the S&P 500 tracked by Bank of America are higher than levels seen in March 2000, near when the dot-com bubble burst.

Still, many expect the economy to hold up and provide fresh fuel for stocks. The U.S. economy stayed resilient last year despite Trump’s tariffs, persistent inflation, and immigration shocks. Americans kept spending, and businesses kept investing mammoth amounts in data centers and other critical parts of AI infrastructure.

Corporate earnings growth is expected to stay robust. Analysts polled by FactSet expect companies in the S&P 500 to report a 15% jump in profits this year, which would mark the highest annual rate of growth since 2021.

“The base case is one in which there is sufficient momentum in the economy,” said Mark Luschini, chief investment strategist at Janney Capital Management.

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