When predicting a year ahead for a stock, all the odds and most of the incentives rest with the bulls. The S&P 500 index has been positive in three-quarters of every calendar year since 1958, when the index was created in its current form. There were more years in which the market rose at least 20% (2019) than in years where it did not fall at all (2017). In addition to this generally favorable outlook, the current situation provides little reason to overthink the default stance of bland bullishness. The bull market has been going on for 38 months and is dominated by uptrends. Consensus revenue estimates promise double-digit growth next year. And even after cutting interest rates by 1.75 percentage points over the past 15 months, the Fed’s next move is likely to be even lower. It’s no wonder, then, that Wall Street cripples across the board are calling for even more upside in 2026, with an overall rally of 10% or more. Recent tape action has done nothing to dampen optimism. The past two months of mostly sideways fluctuations within 3% of the S&P 500’s all-time high have helped rebalance the market, punctured the aggressive doom and gloom surrounding many AI moves, quelled some of the speculative malfeasance, and allowed valuations to stabilize. .SPX Year-to-date Mountain S&P 500, year-to-date Nasdaq 100 forward price-to-earnings ratios have fallen to 26, several points below their averages over the past two years. The last time the premium to the broader S&P 500 was this narrow was more than six years ago. Such a reset could make it even easier to be bullish as there are fewer notable overshoots to explain. fair enough. But the fact that history, the weight of evidence, and human nature all support bullish expectations means that next year’s reality will grade against somewhat lofty expectations. According to a report from FactSet, 57.5% of analysts’ ratings on S&P 500 stocks are “buy.” This compares to the highest level since at least 2010, reached in February 2022, when the market was turning from a boom to a nine-month bear market. Bespoke Investment Group notes that the S&P 500’s three-year return is up 87% from its October high, putting it in the best 5% of all three-year performance aggregates. After a similar three-year period, forward returns are on average positive, but the growth is much smaller than average. Some historical pattern relationships recommend riding on with some bumps in the road. Ned Davis Research maintains a composite cycle for the S&P 500 that combines a 1-year seasonal template, a 4-year election cycle, and a 10-year pattern (for example, years ending in 6). As for 2026, upside is expected to be capped by months of dead money and a history of poor midterm elections. But any given year is made up of broad trends that interact with specific, often surprising, circumstances. While variables are inherently unpredictable, there appear to be some broad questions hanging over the market as 2025 moves into the past. Key Questions for 2026 Should investors really expect “broader developments” in the stock market next year? The weight of the S&P 500 index’s so-called narrow market performance seems to have been the inevitable starting point for most market discussions in recent years. In some cases, the disagreement is a matter of semantics. Was the S&P 500’s 16.2% rise this year due to just a handful of stocks? Not literally, no. The equally weighted S&P 500 index rose 10.7%. But that performance gap itself conveys the danger of owning very little of the largest index weight. And if Nvidia, Alphabet, and Broadcom were to remain flat for the year, the S&P 500’s gains would be cut by one-third. A series of professional investor guests appear on CNBC television to push back against the idea of mega-cap technology superiority by making the case that only two of the seven Magnificent stocks outperform the S&P 500. First of all, there are now three stocks (Tesla just joined Alphabet and Nvidia). Second, all but one of Mag7 (Amazon) is up more than the median S&P 500 stock price this year (5.9%). And the fact that Meta Platform and Broadcom, which is bigger than Tesla, aren’t in Mag7’s basket is just a historical oddity. However, it is right that other than these facts, other parts of the market also make important contributions. The daily cumulative tally of advancers and decliners has recently recorded many new highs. Bank stocks are showing clear leadership. The broader business cycle is in full swing as the crowd braces for the economic growth pick-up everyone expects in early 2026. But getting back to the topic, should investors hope that the 35% of the S&P 500 represented by Mag 7 will materially underperform?Perhaps it is better for paid professionals to beat a difficult benchmark, even if the index is lower. But in a bull market, there is rarely a comprehensive change of leadership mid-gallop. This is an AI bull market. This allowed for the first bull market to begin before the Fed ended its tightening cycle. In a bull market that didn’t start rising right before the recession, the overall returns for this market are actually well above average. This is thanks to the tremendous value built in the perceived promise of AI and the unprecedented amounts of money being urgently spent on creating it. Indeed, let’s hope for a good rotational upward trend, perhaps broader earnings growth, and one that allows the leaders of expensive tech companies to periodically cool down without bending the entire tape before plunging into the bubble zone. But markets held by small-cap stocks, retail chains, railroads and biotech companies are likely to be riskier and less reliable. Will Earth be able to supply the amount of capital issuers are likely to demand next year?Last week, it was reported that OpenAI had privately raised $100 billion at a valuation of $800 billion, more than all but 12 publicly traded companies in the United States. Several more similar injections will be needed to fund current efforts. SpaceX is said to be planning an IPO for more than $1 trillion. It is said that humanity is mixed here. And there’s been an accumulation of new offerings over the years trying to get out ahead of these Goliaths. An active IPO market indicates a robust, albeit maturing, bull market. Until a certain point. The S&P 1500 (consisting of small-, mid-, and large-cap stocks) has a total value of approximately $63 trillion, making it a deep and vast pool of stocks. But next year, hyperscalers’ capital spending ambitions are expected to dry up the money available for share buybacks, so much so that Goldman Sachs predicts a significant increase in the total number of shares outstanding in the S&P 500. Bull markets usually end with a recession, economic shock, or Fed tightening. But sometimes part of the reason is that the relationship between supply and demand is not so friendly. Does Cryptocurrency Struggles Matter for Stocks? Bitcoin has not convincingly regained its footing since October’s flash liquidation and remains about 30% below its peak of over $124,000 10 weeks ago. Not so long ago, this was likely to be a drag on the Nasdaq, with Bitcoin acting like it was just an amplified version of the tech sector. Still, the Nasdaq is back within 3% of its previous highs and gaping its jaws on the charts against Bitcoin. While this is probably healthy if this is a sustainable delinking, it does raise questions about the retail trading force, which is biased towards crypto holdings and is at the core of this market’s risk-seeking energy. Is it possible that Bitcoin will become inaccessible to speculative activity? This is just an educated guess, but perhaps Bitcoin’s presence in ETFs and institutional asset allocations has made it a kind of boring “standard” money. BTC.CM= YTD Mountain Bitcoin, YTD Bitcoin is everything it was designed to be and everything it will ever be. Its origins date back about 15 years. That means for customers of the 22-year-old Robinhood brokerage, there’s no whiff of new and exciting (at a time when price momentum isn’t gaining fans) compared to quantum computing (which could one day crack Bitcoin) or helicopter robotaxis. Much of the recent selling has been driven by some of the longest-serving Bitcoin holders. There is an entire subsector of companies that have exited crypto mining to power their AI data centers. Will this cause Bitcoin to lose its status as a risk barometer at the other end of the spectrum of technological enthusiasm? Or is this simply a series of over-the-top conclusions that the asset has gone through a rally and then undergone a correction, setting up a contrarian buying opportunity given the large ETF outflows? Just asking here.
