Last week, both the S&P 500 and Dow Jones Industrial Average hit record highs, and following the Federal Reserve's interest rate cut, Wall Street is increasingly optimistic about the prospects for U.S. stocks in 2026.
This trend has been further reinforced by the fact that, although Federal Reserve Chairman Jerome Powell’s remarks at last week’s policy meeting press conference appeared to be “hawkish,” many analysts believe that the Fed’s monetary policy stance is not as hawkish as expected.
Is the Federal Reserve not actually that "hawkish"?
Following last week's interest rate decision, Federal Reserve Chairman Jerome Powell stated that due to missing data and economic uncertainty, the Fed would shift to a wait-and-see approach after three rate cuts this year. However, he also revealed that no one within the Fed currently considers a rate hike as a basic expectation.
Powell's statement clearly relieved many analysts.
“Actually, I think his (Powell's) tone in the statement was a bit dovish. I didn’t think it was tough at all,” David Waddell, CEO of Waddell & Associates, said in an interview.
More importantly, Waddell points out that US President Trump is expected to replace the Federal Reserve Chairman in May next year, and whoever succeeds Powell will almost certainly be someone who supports lowering interest rates.
“Trump will only replace him with a dove . So we will see a lot of monetary stimulus. We will also see a lot of fiscal stimulus,” Waddle added.
Meanwhile, the Federal Reserve's upward revision of its 2026 U.S. GDP forecast to 2.3% likely means more revenue, higher profit margins, and earnings growth. These expectations are driving Wall Street institutions to give bullish stock price targets.
Senior strategist Ed Yardeni also believes the S&P 500 will reach 7700 points. He recently increased the probability of his proposed "Roaring 2020s" scenario to 60%, citing reasons including tax breaks from the "Big and Beautiful Act" and the impact of artificial intelligence. Driven by technological prosperity, etc.
Meanwhile, Oppenheimer set a target of 8,100 for the S&P 500 in 2026 and believes that shifts in monetary and fiscal policies are the main drivers of corporate earnings.
"This is definitely good for businesses, and it's good for consumers," said John Stoltzfus, chief market strategist at Oppenheimer, in an interview after the Fed's decision. "That will be reflected in the stock market."
Wall Street investment banks are giving high target prices.
UBS shares the same optimistic view, with its strategists setting a 2026 target of 7,700 points for the index, citing "continued economic growth, Fed rate cuts, and a significant increase in AI investment spending."
Goldman Sachs Analysts predict that S&P 500 earnings growth will exceed 12% in 2026, slightly below Wall Street’s consensus forecast of 14%.
Currently, the top seven stocks in the S&P 500 (including Nvidia) , apple , Microsoft Google, Amazon Broadcom The META index accounts for about a quarter of the index's returns. However, Goldman Sachs expects the range of gains for US stock returns to widen in the future.
“We expect earnings growth for the remaining 493 companies to be supported as economic growth accelerates and the impact of tariffs on profit margins diminishes,” Goldman Sachs ’ Ben Snider wrote in a report last Thursday.
Strategists will also be watching for positive consumer factors entering the market next year, as Trump focuses on addressing the affordability crisis.
“The market is poised for a strong upward trend next year,” said Victoria Fernandez, chief market strategist at Crossmark Global Investments. However, she also cautioned investors against “betting everything” on a single sector.
You might want to pay attention to "secondary companies" in AI trading.
Last week, at tech giant Oracle AI deals cooled somewhat after chipmaker Broadcom released its earnings report. While Fernandez remains bullish on the sector, she advises investors to be selective and focus on "secondary" AI companies.
"Who will truly become outstanding users of artificial intelligence is not just about who creates all of this or who builds data centers. " "But who will utilize artificial intelligence?" she suggested, offering her line of thought.
In addition to the technology sector, Fernandez also advised investors to focus on sectors exhibiting positive technology trends or those that have begun to bottom out relative to the market. She believes specific growth opportunities will emerge in areas such as transportation, housing construction, healthcare, and energy.
“I’m not saying we should invest in all of these sectors,” Fernandez explained. “I’m just saying we should look for opportunities within these sectors, because that’s where you start to see some growth.”
(Article source: CLS)
