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As 2025 comes to an end, the economy seems stable, the S&P 500 is up more than 15% so far this year, and inflation is relatively tame. Yet Americans have the kind of gloomy views about inflation, politics, and the job market that are normally only seen during recessions.
It’s a good reminder that there can be a disconnect between the big picture and individual American wallets. But with most strategists forecasting more of the same for 2026, it’s also an opportunity to dig into the large-scale drivers of what’s expected to be a relatively healthy economy and stock market.
“We are constructive on 2026,” said Rob Haworth, senior investment strategy director for U.S. Bank. “There are risks we have to watch, but we think that this is a market and an economy that can repeat the successes we’ve seen over the last couple of years.”
Will the stock market go up in 2026?
Most analysts do expect the stock market to perform well next year, bolstered by spending on artificial intelligence technology, Federal Reserve rate cuts, and tax breaks.
Strategists at Deutsche Bank expect the S&P 500 to end 2026 at 8,000, which would mean a nearly 18% increase over the index’s closing level of about 6,737 on Dec. 17. Investment bank Morgan Stanley sees a 14% increase. LPL Financial’s forecast of a level between 7,300 and 7,400 translates to only about an 8% increase.
What will AI do to the economy?
Just like average Americans, professional investors are keeping a wary eye on AI.
“This phase of the investment cycle – which is likely to play out over the next three to five years – will be a double-edged sword. On one hand, it will spur the economy to swap out old tools for new ones,” wrote analysts at Vanguard. “But it will also present an increasingly narrow investment landscape, where investors will find it difficult to avoid risk.”
What does “narrow” mean? As shown in the chart below, from Apollo Chief Economist Torsten Slok, most of the stock market’s performance over the past few years has been concentrated in seven high-growth stocks: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla.
Many analysts see such concentrated success as worrisome. But Deutsche Bank’s team says it expects earnings growth for tech stocks to moderate, even as growth for the rest of the S&P 500 likely picks up.
What kinds of stocks will do well in 2026?
Investors have recently started to pay more attention to industrial-sector companies like General Electric and RTX Corp. (the company formerly known as Raytheon) which will benefit from the AI boom, U.S. Bank’s Haworth told USA TODAY. That’s a sign of a healthier market, he believes.
Truist Wealth recently upgraded the sector, which can be invested in via the State Street Industrial Select Sector SPDR exchange-traded fund (ETF) with the ticker XLI. Truist also remains bullish on the information technology sector, which features the Mag 7 heavyweights and can be tracked through State Street’s XLK ETF.
Goldman Sachs’ strategist team, meanwhile, takes an even broader view, recommending that investors diversify their holdings outside of the U.S, particularly to emerging markets like Brazil, India and China, as well as across sectors.
Finally, another piece of advice Goldman gives, to “stay invested,” is a reminder that financial markets can be jumpy. Stocks and bonds both plummeted when the White House announced its tariff regime in April but recovered soon after. Investors who stay the course generally do better than those who try to time the market.
Read More: What will the stock market do in 2026? AI will dominate
