US stock market outlook for 2026: earnings and Fed support point higher

US stock market outlook 2026

​​​The case for United States (US) equities in 2026 rests on two pillars: earnings growth and a supportive Federal Reserve (Fed). Both look set to deliver, even if the path proves choppier than the straight-line gains seen in parts of 2024 and 2025.

​Corporate earnings have weathered the storm of higher rates and elevated costs remarkably well. Margins have held up, productivity gains are finally showing through, and revenue growth remains solid across most sectors. The pessimism that dominated much of 2022 and 2023 has proven misplaced, with companies demonstrating pricing power and operational efficiency that exceeded expectations.

​The AI investment boom is beginning to translate into tangible benefits. While sceptics focus on the massive capital expenditure, the productivity gains are becoming visible in corporate results. This supports both margin expansion and top-line growth, providing a foundation for continued earnings momentum through 2026.

​The Fed, meanwhile, has room to ease policy without reigniting inflation concerns. Disinflation is sufficiently entrenched that rate cuts can proceed at a measured pace, providing a tailwind for risk assets without requiring an economic crisis to justify them. This 'goldilocks' scenario of growth with easing financial conditions is exactly what equity markets need.

​Valuation concerns are overblown. Yes, the market isn't cheap, but it rarely is at the start of sustained bull runs. Elevated multiples reflect strong fundamentals and improving earnings visibility, not irrational exuberance. The concentration in mega-cap tech simply reflects where the growth is, and there's no reason to expect this leadership to falter when these companies continue to deliver.

​Mid-term election years bring volatility, but the overall trajectory remains upward. Historical weakness in these periods tends to create buying opportunities rather than signalling sustained declines. With corporate balance sheets strong, share buyback activity robust, and liquidity conditions improving, the path of least resistance is higher.

​Pullbacks will happen, as they always do. But the fundamental backdrop of earnings growth, Fed support and solid corporate fundamentals argues for buying dips rather than fighting the trend. The bull market has further to run.

​Technical analysis

​Dow Jones

​While 50,000 eluded the Dow Jones in 2025, it staged an impressive recovery from the tariff panic of April. After dropping below the 200-day simple moving average (SMA) in March, and then falling to below 37,000, the index recovered its losses and then moved higher, and by mid-August it was at a new record high.

​For the moment, the progression of new highs and higher lows confirms the solid technical outlook to match the strong earnings and macroeconomic picture.

Dow Jones candlestick chart

​S&P 500

​It is a similar picture for this index, and the S&P 500's bigger weighting to the tech sector meant that the recovery has been even stronger. The rally since April has been remarkably quiet, with only the November pullback really threatening to disrupt the broader uptrend. 

​S&P 500 candlestick chart 

​A note on volatility

​Apart from March-May, the year has been quite a quiet one overall. Investors and traders alike need to be prepared for the possibility that this will not be the case next year. It is now around eight months since the 20% drop in April, which means we may be closer to the next drop than to the one last April. The ‘average’ year sees at least one fall of 14% for the S&P 500, and a similar one for the Dow.

​The quiet period of the last eight months will not last for ever, and it is important to be aware that volatility can return at some point in the new year.