Why the stock market could move higher in 2026

Market Outlook - Wells Fargo Investment Institute expects the stock market to move higher through 2026, despite potential volatility in 2025 due to economic, geopolitical, and policy uncertainties [2] - The Institute advises investors to remain invested in the market to capitalize on anticipated gains as the economy reaccelerates [2] - Periods of volatility should be viewed as opportunities to increase equity positions in anticipation of gains through 2026 [3] Investment Strategy - The Institute favors quality within the equity space, recommending large-cap and mid-cap stocks over small-cap stocks [4] - Developed markets are preferred over emerging markets for international exposure [4] - Diversification strategies should consider the strength in international spaces, particularly developed markets ex-US, which have compensated for underperformance in other equity markets [7][8] Risk Factors - Tariff troubles are expected to persist, potentially impacting corporate earnings and forward guidance [5][6] - Companies may reiterate caution or uncertainty related to tariffs in upcoming earnings quarters [5] Generative AI Opportunities - The benefits of generative AI extend beyond the tech sector to communication services, industrials, and energy sectors [9][10] - Investors should broaden their focus to include these sectors to capitalize on the AI trade, in addition to remaining favorable on the tech sector [10]