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As we close the books on 2025 and ring in the new year, we are at the point where Wall Street’s “top” strategists make their market predictions for 2026. As with most years, the results vary across the board, but the consensus is for another double-digit gain in 2026. While nice to see, I wouldn’t put too much stock in the forecasts because short-term market predictions are generally unreliable. Now, this is not to say we should completely ignore these predictions, but more so view them as speculation and take them with a grain of salt.

Strategists on average expect the S&P 500 will end 2026 at 7,629, representing an ~11% upside as of this writing. Of course, this would be a welcome outcome. The reality is that the median estimate tends to be between 7% and 12% in most years, which is not saying much, as the long-term historical annual average return for the S&P 500 is ~10%. Now you will always get a few bold predictions for either significantly higher or lower returns to draw attention and get clicks, but those predictions are almost always wrong.

Recent history shows that most analysts are, for the most part, guessing, just like the rest of us. Even with all the additional real-time information and data at their disposal, markets are generally one step ahead. At this point, predictions really should be viewed as a form of entertainment.

The chart above helps illustrate how far off the median estimates have been in seven of the last eight years. In five instances, the median estimates were off by at least 15%, and in 2021 and 2024, they were off by 26% and 21% respectively.

Looking at 2025, the median estimates seem pretty accurate, so you might be thinking that they are back to finding their groove now. Well, the devil is always in the details.

As seen on the chart below, as the year unfolded, many strategists abandoned their original estimates as volatility surged with the unveiling of “Liberation Day.” U.S. equity markets were down north of 15%, and pessimism took over, with almost half of the estimates being updated, projecting the S&P to finish the year with a negative return. Just a friendly reminder: The S&P 500 is up ~18% YTD (as of this writing) and has experienced some of the lowest volatility in history over the past seven months.

So essentially, many forecasts were revised lower after much of the damage was already done, only to be revised higher after markets recovered a considerable amount of their losses. This is what we call “chasing your own tail,” and it happens far too often, even though it should generally be avoided.

What will 2026 bring? Heck if I know. I do expect more volatility compared with the last two quarters of 2025. The Federal Reserve once again came to the rescue in November, and markets immediately surged higher. We now expect a significant number of rate cuts in 2026. This inherently is where the problem lies. Minus 2022 (a situation in which the Federal Reserve didn’t have a choice but to raise rates), the Fed has been extremely careful not to upset equity markets and has consistently pushed for the path of asset price inflation. Of course, this is not their sole goal, but it is an important one.

Markets are back to applauding weak economic data because that is interpreted as the Fed getting more involved (think more rate cuts and more stimulus). This can be somewhat of a dangerous proposition with the U.S. national debt sitting at ~$38 trillion, fears of an AI bubble, and a weakening labor market. The Fed won’t be able to constantly save the market at every turn.

Now, does this mean a crash is imminent? Of course not. It just means that markets are more susceptible given how much they’ve rallied over the past three years. We have been on a remarkable run, and the best thing to do is ignore the outside noise and focus on your personal risk tolerance, goals, and financial plan.

Happy new year to all!

Feel free to discuss your situation with our financial planning firm.

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