Happy New Year! Time to Look into the Crystal Ball

At the start of a new year, when many New Year resolutions might not survive the month, I wonder how the predictions of major Wall Street Firm’s will look by the end of the year? So, let’s dust off Wall Street’s crystal ball, and see what predictions are being made for the equity market over the next 12 months.

We closed 2025 with the S&P 500 index at 6,886. Where will the index go this year? These thirteen firms believe they can see into the future:

Oppenheimer              8,100                           Goldman         7,600

Deutsche Bank            8,000                           JP Morgan      7,500                          

Morgan Stanley           7,800                           HSBC              7,500  

Wells Fargo                 7,800                           Jefferies           7,500  

Evercore                      7,750                           Barclays          7,400  

Fundstrat                     7,700                           Bank of America         7,100  

 UBS                           7,700                                                                                       

The average is 7,650, which would be a respectable 11% rise in the S&P 500 index during 2026.

A major consensus of the group is that artificial intelligence will help improve operating efficiencies for companies which will in turn lead to growing profits. Wall Street’s positive outlook for 2026 seems to be based upon AI optimism; a relatively friendly Fed that still seems willing to slowly lower interest rates; and a US investor base sitting on a record amount of cash estimated at $8 trillion. But what are the risks to these predictions?

The first is the “K Economy”. Our economy seems to have divided the US consumer into two groups. Like the letter K there is a section that is moving up. The consumers in this group have benefitted from the record movement in the stock market and their spending has remained strong – this group is the ‘Haves’. The other group is the downward moving part of the K and represents the consumers that are struggling, living paycheck to paycheck, and worried about their rising debt load and inflation. These folks are the ‘Have Nots’. On November 3, 2026, these two groups will be voting in the midterm elections. I do not see it as a battle between Republicans and Democrats, but more a vote of the upward K sloping Haves versus the downward K sloping Have nots.

Another risk is whether assets are overvalued. Are we in an AI bubble? Are gold and silver overpriced?

A third major risk is whether the US debt is sustainable? What happens if no one supports and buys our growing level of debt?

Markets do surprise investors and corrections can be violent. Don’t forget how some historical US asset bubbles burst over the course of history:

1929 Stock Market Crash (-89%); 1980 Gold Price Collapse (-65%); 2000 Dot Com Bubble (-76%); 2008 Housing Crisis (some homeowners lost 100%); 2008 Oil Price Bubble (-79%); 2017 Bitcoin Valuation Crash (-70%); 2019 Biotech Stocks Crash (-59%).

Some of our Wall Street firms have even created “Bubble Bursting Models” that try to predict this risk. The crystal ball parlor game of trying to predict the market for the next 12 months remains a fascinating, surprising, and challenging task. It always has been.

Carl Gambrell