Outlook for US stocks in 2026: After three consecutive increases in the yearly average, three key factors will determine whether the bull market can continue.

The US stock market has achieved double-digit percentage gains for the third consecutive year. Achieving a fourth year of brilliance in 2026 may be very difficult, requiring strong corporate profits, the Federal Reserve maintaining a dovish stance, and significant investments in the field of artificial intelligence. The bull market in the US stock market since October 2022 has been mainly driven by optimism in artificial intelligence, rate cuts, and continued growth amid economic recession fears. The US stock market has experienced a rollercoaster year, with the Trump administration announcing unexpected tariff measures in April causing a market crash, followed by a strong rebound; then falling due to concerns about artificial intelligence valuation bubbles, and starting to rise again by the end of the year. With only a few trading days left until the end of the year, the S&P 500 Index has risen by over 17% in 2025. Previously, the gains in 2024 and 2023 were 23% and 24% respectively. CFRA's Chief Investment Strategy Officer, Sam Stovall, stated that to achieve a strong double-digit percentage return for the fourth consecutive year, the market needs to be firing on all cylinders. The strategist's target level at the end of 2026 is 7400 points, approximately 7% higher than the current level. Stovall said, "Given many negative factors, although we may ultimately have an unexpectedly good year, I don't think it will be another brilliant year." Many market strategists predict a strong performance in the market in 2026, with some giving S&P 500 Index target prices representing gains of over 10%, including Deutsche Bank Aktiengesellschaft's target of 8000 points, approximately 16% higher than the current level. Will increased profits from CKH HOLDINGS in artificial intelligence lead to strong gains in US stocks? Bulls are positive about US stocks, believing that the profit prospects of US companies are optimistic. Tajinder Dhillon, Director of Profit Research at LSEG, stated that earnings for S&P 500 Index component companies are expected to grow by over 15% in 2026, following a steady growth of 13% in 2025. Earnings growth is expected to be driven by a broader group of companies, as fiscal stimulus and loose monetary policy help boost the economy and consumer spending, not just limited to a few related tech giants. These giant companies include NVIDIA Corporation (NVDA.US), Microsoft Corporation (MSFT.US), Alphabet Inc. Class C (GOOGL.US), and Amazon.com, Inc. (AMZN.US). Dhillon stated that these seven companies, known as the "seven tech giants," are expected to achieve a profit growth rate of 37% in 2024, while the profit growth rate of other companies in the S&P 500 Index is only 7%. By 2026, this gap is expected to significantly narrow: the profit growth rate of the seven tech giants is expected to reach 23%, while the profit growth rate of other companies in the index will reach 13%. Chief Market Strategist at Man Group, Kristina Hooper, stated, "The earnings growth of the other 493 stocks in the S&P 500 Index has improved - we have already seen some of this improvement - and this will certainly help the stock market achieve double-digit returns next year." Investors said that profit growth is crucial, as it is difficult for stock valuations to rise above high levels. The AI boom has driven up the valuations of related stocks, including massive investments in infrastructure and strong demand for AI applications. However, recent questions about the return on capital expenditure have put pressure on tech stocks and other AI-related stocks, which may continue to be a key issue in 2026. Jeff Buchbinder, Chief Equity Strategist at LPL Financial, stated, "If companies start cutting their capital expenditure targets and the market loses confidence in the return on AI investments... then you may see the stock market flatline this year, or even slightly decline." Dovish Fed, Complex Historical Signals, and Uncertainties Investors said that another key factor for the strong rise in US stocks is an economy weak enough to suppress inflation and push for further rate cuts, but not weak enough to fall into a recession. Federal funds futures show that investors expect at least two rate cuts in 2026, each at 25 basis points, following the 175 basis point rate cuts in 2024 and 2025. Yung-Yu Ma, Chief Investment Strategist at PNC Financial Services Group, Inc., stated, "The driving factor I am most concerned about could be the Federal Reserve maintaining a dovish stance." Investors are closely watching Trump's selection of the Federal Reserve chair (expected to be announced in early 2026), seeing it as a signal that the Fed will be even more dovish, but they are also worried about the Fed's independence being tested. Historical data shows mixed potential returns for 2026. On the positive side, according to LPL Research data, there have been seven bull markets extending into the fourth year since 1950, with an average increase of 12.8% in the fourth year, and six of the seven realized positive returns. However, in US midterm election years, due to the uncertainty brought by the election of a new Congress, stock market performance is often not good. According to Stovall of CFRA, the average increase in the S&P 500 Index during midterm election years is only 3.8%, while the average increase in the other three years of a presidential term is 11%. Additionally, there are many potential uncertainties. For example, Ma stated that while tariffs have ceased to be a dominant issue in the market after causing significant volatility at the beginning of 2025, the relationship between the world's two largest economies - the US and China - could influence the stock market around 2026. He said, "In fact, there may be breakthroughs between the US and China, which could be a positive catalyst that is not currently factored in."