There’s a long-running joke about forecasting: it’s hard to tell who does it worse, weather forecasters or market strategists. Both have improved over the years, but the gap between predictions and reality persists.
When it comes to markets, FactSet data shows that from 2005 to 2024, analysts’ start-of-year forecasts for the S&P 500 missed the actual year-end level by an average of about 5.9%. In slightly more than half of those years, analysts were too optimistic; in the rest, the market ended up outperforming expectations.
As for the last year, the S&P 500 blew past the consensus forecast of 6,678, finishing the year near 6,900 points.
Looking ahead to 2026, analysts are also broadly optimistic. According to FactSet, the S&P 500 is expected to rise to approximately 7,968 points over the next 12 months, supported by projected corporate earnings growth of 15% year-over-year, which is well above the ten-year average of 8.6%. Much of that growth is expected to come from the “Magnificent Seven,” the tech giants, whose profits could increase by as much as 22.7%.
Strong consumer demand, combined with targeted fiscal measures under the One Big Beautiful Bill, should help support corporate margins. Artificial intelligence also remains a key catalyst. Continued investment in data centers, cloud infrastructure, and energy efficiency is likely to extend beyond the tech sector into areas such as logistics and finance, thereby boosting productivity across the broader economy.
As for the Fed, the latest meeting highlighted some internal disagreement, with dissenting votes reflecting differing views on inflation and the labor market. Unemployment has ticked slightly higher, and while inflation is easing, it remains above target, leaving open the question of how many rate cuts may be needed in 2026. Even so, the lagged effects of the 2025 rate cuts should provide a favorable environment for both businesses and investors.
However, it’s worth keeping in mind that U.S. markets remain historically expensive, and a heavy reliance on AI-driven growth could amplify volatility if confidence starts to wane. Geopolitical tensions — from Eastern Europe to East Asia — along with growing fiscal pressures in countries such as Germany, Japan, the U.S., and China, could also act as so-called “black swans.”
In short, while the outlook for 2026 looks encouraging, it comes with an important caveat. Investors don’t need to brace for a major crash, but they should be prepared — both mentally and strategically — for potential swings. The good news is that recent dips have rebounded quickly, and in extreme cases, the Fed’s support through QE remains a backstop.