2026 Is Poised For Even Bigger Gains Than Last Year

Market Performance - In 2026, major stock indices have shown positive year-to-date performance: Dow up 2.70%, S&P up 1.38%, Nasdaq up 1.18%, Russell 2000 up 7.89%, and S&P 400 up 6.07% [1] - The year 2025 marked the third consecutive year of double-digit gains for the market, with expectations for continued growth in 2026 [1][2] Economic Factors - Contributing factors to the market's positive outlook include moderate inflation, economic resilience, lower interest rates, and the ongoing AI boom [2] - The Consumer Price Index (CPI) showed core inflation at 2.6% year-over-year, down from 3.3% earlier in the previous year, indicating easing inflation [12] - The Federal Reserve has cut interest rates three times in the previous year and maintains an outlook for further cuts, which is expected to drive more investment into equities [13][14] Earnings Outlook - Earnings growth is projected to be strong, with Q4 2025 expected to show EPS growth of 7.9%, Q1 2026 at 11.8%, and Q2 2026 at 14.0% [15] - Despite previous concerns over tariffs and recession fears, aggregate earnings estimates remain positive, reinforcing the notion that earnings are the primary driver of stock prices [16] Small-Cap Performance - Small-cap stocks are experiencing a resurgence, outperforming larger indices in 2026, aided by lower interest rates and favorable tax provisions from recent budget bills [17][18] - The tax provisions allow small-cap companies to invest more in growth, potentially leading to a small-cap renaissance [19] AI Market Potential - The AI market is characterized by "insatiable" demand, with projections indicating it could grow to $1 trillion by 2030, as stated by AMD CEO Lisa Su [10] - The current AI boom is expected to be transformative across various industries, similar to past technology booms driven by the internet and personal computing [5][6] Investment Strategies - Proven stock-picking strategies, such as focusing on Zacks Rank 1 Strong Buy stocks, have historically outperformed the market, achieving an average annual return of nearly 24% [21] - Strategies targeting small-cap growth and stocks making new highs have also shown significant returns, outperforming the market by substantial margins over the past 26 years [26][27]