Wall Street says bull run intact for 2026 – I see a more testing year

Forecasts from major US banks suggest the bull market will remain intact in 2026, with some projecting the S&P 500 above 7,500 by year end.

The latest Financial Times survey, covering nine major investment banks, reinforces this confidence with an average forecast of roughly 10% upside from current levels.

I understand why that optimism exists. The US economy continues to outperform expectations, corporate earnings have held up, and the narrative around AI has become a powerful driver of sentiment.

Even so, I believe 2026 will be far more nuanced than these forecasts imply.

A strong finish is possible, but the path to get there will be, I argue, far more volatile, uneven and unforgiving than many investors expect.

A rising year-end target does not guarantee a comfortable journey. Markets can deliver positive annual returns while subjecting investors to sharp reversals and rapid shifts in tone, and I expect that to define the year ahead.

AI sits at the centre of this dynamic. The scale of investment across 2024 and 2025 has been extraordinary—far beyond anything seen in previous tech cycles.

Companies are pouring billions into data centres, computing power and next-generation infrastructure. This tells me two things.

The first is that the long-term potential remains enormous. The second is that expectations have reached a point where even small disappointments will trigger aggressive reactions. Costs arrive immediately, revenues don’t.

This creates a setup where earnings seasons become a collection of profit tests rather than routine updates.

Some companies will justify their valuations and outperform. Others will fall short as soon as the market demands real evidence of monetisation. Investors need to be ready for both outcomes. Those who assume the entire sector will move in unison are setting themselves up for avoidable losses.

A second challenge is the extreme concentration driving markets. A small number of mega-cap names now influence index performance to an extent that distorts signals and suppresses breadth.

This isn’t a benign feature of the current cycle. It introduces fragility, because a single earnings miss or strategic pivot from one of these giants can shift sentiment across global markets. Investors who look only at headline index levels risk missing the structural vulnerability underneath.

Trade policy adds further unpredictability. The tariff shock last April—an almost immediate 15% drop over a few days—showed how exposed markets are to sudden political decisions. The rebound that followed was encouraging, but it did not eliminate the risk. Tariff policy remains a live instrument, and its impact on supply chains, input costs and margins will remain a key variable throughout 2026.

Monetary policy will add another dose of complexity. Rate cuts are widely expected, yet expectations surrounding timing and magnitude remain inconsistent. Inflation has cooled but has not settled into a predictable pattern.

Growth signals across key economies are mixed. Any misalignment between market expectations and central bank action could produce short bursts of volatility. Investors should avoid treating the prospect of lower rates as a guarantee of stability.

Consumer dynamics also deserve attention. While higher earners continue to spend, lower-income households face persistent pressure from housing and credit costs. This divergence feeds directly into company earnings, especially for firms reliant on broad-based consumer demand. Investors who assume uniform strength across all categories will encounter surprises.

My central message is that 2026 rewards clarity of thought and punishes complacency. Broad enthusiasm powered the post-pandemic rally and the recovery after the tariff-driven selloff, but the next phase requires more precise judgment.

Investors must differentiate between companies capable of converting heavy investment into sustainable profit and those relying on momentum or narrative alone.

I expect more volatility because the conditions for it are already in place: elevated expectations, narrow leadership, geopolitical tension, ambitious AI spending and uneven economic data.

These characteristics do not produce smooth markets. But they do produce opportunities for disciplined investors and traps for those who assume last year’s playbook still applies.

The bull market may continue, but its behaviour will change. Gains will be lumpy. Leadership will shift. Earnings will matter more than they have in years.

Investors who approach 2026 with discipline, selectivity and realism will find compelling openings. Investors who treat the year as a simple extension of the recent past will learn how quickly sentiment can turn.

Judgment will decide outcomes next year. All investors should take that seriously.