Here’s some reading for the holiday. I know the articles we’ve shared haven’t been very upbeat this year, but people have survived under worse political regimes than the Trump administration, and the economy has not collapsed despite enormous policy uncertainty and open corruption. The market this year has nonetheless performed strongly, with the S&P 500 up roughly 17–18% year-to-date, even in the face of forces that reasonably should weigh on growth—chaotic tariff policies, labor dislocation, persistently high prices, and rising fears of an AI-driven market bubble.
Will the market and the economy perform as well next year as they did this past one? Here are some (mostly rosy) S&P 500 price targets:
Below are articles by several forecasters laying out their expectations for the year ahead.
NEW: 2026 market outlook: A multidimensional polarization, JP Morgan
The year ahead will likely be defined by the collision of uneven monetary policy, the relentless expansion of AI and intensifying market polarization. These drivers, along with the evolving U.S. policy agenda, will continue to reshape the global macro and market landscape.
2026 Outlook: US Stocks and Economy, Charles Schwab, by Liz Ann Sonders, Kevin Gordon
We believe the macro environment will continue to be unstable given policy crosscurrents and a wobbly labor market, but stocks can likely churn higher given a firmer earnings backdrop.
Want to Know Where the Market Is Going? Don’t Trust This, or Any, Forecast. By Jeff Sommer, NY Times
Wall Street stock gurus are making predictions again. Our columnist got into the game with a number he doesn’t believe.
2026 Market Outlook: Key Themes and Predictions, Observer News Enterprise
As the final weeks of 2025 draw to a close, the global financial landscape is entering a pivotal transformation. The “AI Gold Rush” that defined the previous two years is evolving from a speculative frenzy into a disciplined era of monetization and operational efficiency. Simultaneously, a unique confluence of fiscal stimulus and central bank normalization is setting the stage for what analysts are calling a “non-recessionary easing cycle” for the year ahead.
*****
SUMMARY SECTION
Want to Know Where the Market Is Going? Don’t Trust This, or Any, Forecast. NY Times
This seems like a good place to start.
Jeff Sommer’s core claim is blunt: nobody knows where the stock market is going next year, least of all professional forecasters — and history proves it.
To make the point, Sommer ironically offers his own forecast for 2026 — a 16% decline in the S&P 500 — while repeatedly insisting it should not be believed. His purpose isn’t to argue the market will fall, but to expose how annual market forecasts are little more than ritualized guesswork, dressed up as expertise.
Why forecasts are unreliable
Sommer leans on long-term data compiled by Paul Hickey of Bespoke Investment Group showing that since 2000:
- Wall Street’s consensus forecast has never predicted a down year, even though the market fell in 28% of those years
- Forecasts miss actual outcomes by an average of 14 percentage points per year
- Loss years (like 2008 or 2022) are missed spectacularly
- When forecasts “work,” it’s often because markets overshoot in good years, not because predictions were accurate
In other words, forecasters aren’t just slightly wrong — they’re wrong in a systematically biased way, always leaning bullish.
Why Wall Street stays bullish anyway
Sommer argues this isn’t accidental:
- Bullish forecasts encourage trading, which benefits banks and brokers
- Confident projections create the illusion of foresight
- Career incentives favor optimism; pessimism doesn’t sell
Even well-intentioned strategists are trapped in this structure. Sommer notes that being bullish has been “directionally correct” about two-thirds of the time — but when it’s wrong, it’s wrong big.
His real point
Sommer isn’t claiming markets will fall in 2026. His deliberately contrarian call is meant as a provocation, echoing the views of late strategists Byron Wien and Laszlo Birinyi, who saw forecasts as arguments, not predictions.
The real message is practical:
- Ignore annual forecasts entirely
- Accept uncertainty as unavoidable
- Invest anyway — but with humility and diversification
What investors should do instead
Sommer’s advice is conservative and long-term:
- For long horizons: Use low-cost, diversified index funds and pair stocks with high-quality bonds
- For retirees or risk-averse investors: Emphasize bonds and reduce or avoid equity exposure
The takeaway is not “don’t invest,” but don’t confuse prediction with insight.
Bottom line
Jeff Sommer’s article is not a market call — it’s a critique of the entire forecasting industry. His argument is that confidence in precise market outcomes is misplaced, and that investors are better served by diversification, discipline, and skepticism than by trusting anyone’s year-ahead target — including his own.
*****
2026 market outlook: A multidimensional polarization. JP Morgan
Big Picture: “Multidimensional Polarization”
JPM’s core framework for 2026 is polarization across almost every dimension of the global economy and markets:
- AI vs. non-AI sectors
- Capex strength vs. weak labor demand
- Asset price resilience vs. fragile sentiment
- Policy divergence across regions
- Household winners vs. losers
The global economy is expected to remain resilient but fragile—able to grow, but vulnerable to shocks.
Global Growth & Recession Risk
- Baseline: Continued global expansion into 2026
- Recession probability: 35% (both U.S. and global)
- Key tension:
- Strong AI-driven investment and fiscal support
- Weak labor demand, business confidence, and consumption momentum
JPM expects consumption to downshift late 2025 but believes the following factors can stabilize growth.
- Fiscal stimulus (front-loaded in early 2026)
- Supportive financial conditions
- AI capex
Inflation:
- Sticky around ~3%
- Goods inflation pressured by trade tensions
- Limited progress lower through at least H1 2026
JPM’s “Global Growth & Recession Risk” view is that the economy can keep expanding into 2026, but in a lopsided and fragile way. Their baseline is continued global growth, supported by pockets of real momentum, yet paired with a clear warning that recession risk is meaningfully elevated. Key supports for household demand and business confidence are weakening at the same time debt burdens, policy noise, and inflation uncertainty raise the cost of any misstep.
They assign a 35% probability to a U.S. and global recession in 2026. That’s not a base-case call, but it’s also not a distant tail risk. JPM’s point is that the economy is operating close enough to a tipping point that further labor market deterioration or a policy shock could quickly turn a softening expansion into a self-reinforcing downturn. Growth remains the base case, but with pronounced downside skew.
The core engine of that baseline is investment, not the consumer. JPM argues that 2025 growth held up largely because demand rotated toward technology and AI-related capital spending, particularly data centers, compute, and infrastructure. That capex supports activity directly through construction and equipment orders and indirectly through profits across the AI supply chain. They expect this investment wave to persist into 2026, helping explain why equities can perform well even if parts of the real economy appear soft.
The tension in their framework comes from the labor market. Hiring has not kept pace with headline GDP strength, as business caution and trade and policy uncertainty restrain labor demand even while capex remains robust. JPM sees this as a key recession channel: softer labor demand eventually slows income growth, erodes purchasing power, and removes the buffer that allows the economy to absorb shocks. Consumers may continue spending for a time, but they become a less reliable stabilizer.
That dynamic underlies JPM’s expectation that consumption begins to downshift late in 2025. This is not a call for consumer collapse, but a recognition that cooling income growth combined with sticky inflation leaves growth increasingly dependent on a narrower set of supports. Strong pockets like AI capex, parts of corporate investment, and potential government support coexist with weaker areas such as labor demand, non-tech activity, and parts of household spending—an imbalance that raises volatility and recession risk.
JPM believes three factors can keep that imbalance from tipping the economy into recession as 2026 begins. First is front-loaded fiscal support early in the year, which could bridge a period of weak sentiment and cautious hiring. Second is supportive financial conditions, which allow businesses to invest and refinance without being forced into abrupt cutbacks. Third is the continued strength of AI-related investment, which they view as a genuine real-economy demand driver, not just a market narrative. If these supports hold, JPM sees a plausible path for labor demand and sentiment to improve through the first half of 2026 as the current hiring slowdown is absorbed rather than amplified.
Inflation is the constraint on that benign outcome. JPM expects inflation to remain sticky around 3%, with limited progress back toward 2% in the near term. The major supply-shock unwind is largely behind us, leaving an inflation backdrop that is harder to finish and that limits how aggressively central banks can respond if growth falters. Goods inflation linked to trade tensions is expected to persist at least into the first half of 2026, keeping headline inflation uncomfortably firm even if those pressures eventually fade.
Taken together, JPM’s story is that 2026 is likely to see continued global expansion driven by investment, fiscal timing, and supportive financial conditions—but with elevated recession risk because labor markets are softening, sentiment is weak, and inflation remains stubborn. The year hinges on whether the economy can manage the mismatch between strong capex and fragile labor and consumption without a shock turning slowdown into downturn.
Equities: Constructive, but Narrow
JPM is bullish on global equities in 2026, expecting double-digit gains expected in both Developed Markets (DM) and Emerging Markets (EM).
Why?
- AI-driven earnings growth
- Lower (or stable) rates
- Reduced policy headwinds
- Strong balance sheets
But, this is a highly polarized bull market. Indexes can rise even as many stocks struggle.
- AI and AI-adjacent sectors dominate
- Market concentration likely increases
- Sentiment remains fragile
Rates: Divergence Is the Theme
- Fed: ~50 bp of additional cuts
- BoJ: ~50 bp of hikes
- Most DM central banks are on hold or finishing easing by early 2026
Bond yields: Grind higher over the year. Forecast Q4 2026:
-
- U.S. 10-yr: ~4.35%
- Germany 10-yr: ~2.75%
- UK 10-yr: ~4.75%
Key risk: AI upside vs. labor downside could force central banks to react unpredictably.
FX: Dollar Weakness, but Controlled
- USD: Bearish in 2026, but less dramatically than 2025
- Fed concern about labor softness weighs on the dollar
- Sticky inflation and solid growth cap downside
Credit: Spreads Widen, But No Crisis
- Focus shifts from macro risk → corporate behavior
- Heavy issuance expected from AI capex, M&A and leveraged buyouts
U.S. Investment Grade:
- Spreads widen to ~110 bp
- Total return ~3%
- Corporates levering up into favorable conditions
Bottom Line
JPM’s 2026 outlook is not a simple “risk-on” call. It’s a world where risk and resilience coexist.
- Growth continues, but unevenly
- AI drives earnings and capex
- Labor markets lag
- Inflation refuses to fully die
- Markets rise—but participation narrows
- Risk assets survive, but fragility remains
*****
2026 Outlook: US Stocks and Economy. Charles Schwab
Liz Ann Sonders and Kevin Gordon argue that 2026 won’t be defined by a clean “soft landing vs. recession” story so much as a continued state of macro instability, with fast-moving policy shifts, uneven inflation pressures, and a labor market that’s wobbling but not collapsing. Their main point is that instability is different from ordinary uncertainty: it’s not just that we don’t know what will happen, it’s that the relationships between growth, inflation, rates, hiring, and markets are changing in real time. That environment produces a K-shaped economy and a K-shaped market, where some sectors, companies, and households do fine while others struggle, and where leadership rotates frequently rather than staying locked in place.
They expect inflation to remain sticky and closer to 3% than 2%, with upside risks if fiscal support expands, the labor market holds together, and consumers keep spending. Tariffs are a central part of that story. They emphasize that tariffs act like taxes on U.S. importers and have already pushed goods prices higher, with spillovers even into domestically produced goods. They also warn that tariff policy may generate fresh volatility in 2026, including around legal uncertainty and the possibility that high tariffs persist even if one legal pathway is blocked. The net result is an ongoing affordability squeeze, especially because “needs” inflation has run hotter than “wants” inflation for an extended period, keeping the public’s inflation anxiety elevated.
A distinctive risk they highlight is that the inflation data itself may become noisier. Because of resource constraints at the Bureau of Labor Statistics, a rising share of CPI items are being estimated through imputation rather than directly observed prices. They argue that even if this doesn’t mechanically raise inflation, it can erode confidence in the data and increase uncertainty around policy, which feeds instability.
On labor, they paint a mixed picture. Hiring looks soft, especially among smaller firms, but layoffs remain relatively contained based on initial jobless claims. Continuing claims have risen more than initial claims, suggesting re-hiring is harder and the labor market is cooling through reduced churn rather than mass layoffs. They expect unemployment to drift higher in 2026, but not at a recessionary pace, partly because immigration has slowed sharply, constraining labor force growth and lowering potential growth. Productivity improvement has helped offset some of that. Their broader framing is that the labor market can be both a headwind and a tailwind: the monthly flow of job growth is weak, but the stock of employed people is still high enough to keep aggregate spending going.
They also argue that fiscal policy may boost growth in 2026 but at the cost of higher debt, and they expect profligate spending to remain a feature of the polarized environment. Meanwhile, private-sector capex, especially around data centers and AI infrastructure, is expected to stay firm, supporting the economy even if consumer spending cools. That mix can produce what they call a “vibepression”: real GDP can keep rising while consumer sentiment stays depressed due to tariffs, affordability stress, and anxiety about AI’s labor effects.
For markets, their base case is that stocks can “churn higher” in 2026, but the path is likely volatile, with continued churn and rotation. AI remains central but is changing in character. They flag concerns about circular financing and capex sustainability in parts of the AI ecosystem, and they suggest leadership could broaden beyond the biggest mega-cap names. They think the market may start rewarding AI adopters more than pure AI enablers, because adopters can lock in measurable efficiency and revenue gains, creating a durable flywheel. They also expect “leapfrogging” within AI leadership, where one cluster of beneficiaries can overtake another as balance sheets, leverage, and spending durability become more important.
They see conditions for broader participation beneath the surface because recent market participation has been historically low, and they argue that this could create a runway for equal-weight versus cap-weight, active versus passive, and selectively higher-quality small caps. But they stress that not all small caps are equal, and they recommend an up-in-quality bias focused on profitability, balance-sheet strength, and reasonable valuations.
On earnings and valuation, they note something constructive: the market’s strength has increasingly been driven by rising earnings expectations rather than multiple expansion, which they view as healthier. They also emphasize that valuation is a poor timing tool, but high multiples can make markets more shock-sensitive. In their framing, elevated valuations don’t guarantee a decline, but they lower the bar for pullbacks when negative news hits, which fits their “instability” thesis.
Their closing message is that 2026 likely keeps the same big forces in play, especially tariffs, a K-shaped economy, sticky inflation, and a wobbly labor market, while AI remains a dominant theme but with more internal rotation. They recommend embracing a higher volatility and dispersion floor, diversifying beyond narrative-driven Tech exposure, and thinking about rebalancing based on volatility and market conditions rather than the calendar.
