With just a few weeks left until the end of the year, plenty of strategists have been outlining their upbeat takes for 2026. Yet there are still plenty of reasons to take overly rosy outlooks with a pinch of salt.
The S&P 500 is in its third year of its bull run, and looks like it will close 2025 with yet another double-digit gain. Many firms expect this pattern to continue as well. Deutsche Bank predicts that the S&P 500 will reach 8000 in 2026, while HSBC set its target at 7500, a popular target also shared by JPMorgan.
Christopher Smart understands why there’s so much optimism. In a recent note, the managing partner of the Arbroath Group counts nine reasons to be long on stocks. The Atlanta Fed’s gross domestic product estimate is now 3.9%, the average household will see more than $2,000 in tax cuts next year, and banks—aided by deregulation—will likely be free with credit.
In fact, deregulation is likely to be a major growth theme in the year to come, Smart writes: “You may believe it’s important to keep lead out of drinking water, but you also recognize that all those rules add costs.” In addition, robust supply and weakening global demand means oil will probably stay around $60, near the low end of the historical range. The next head of the Federal Reserve, at the president’s behest, will be motivated to lower rates.
Then there’s the stock market itself. The November selloff means it looks primed for a comeback, third-quarter earnings growth climbed 13.4%, and the artificial intelligence trade appears alive and well. “The spending binge continues, and leverage doesn’t look crazy,” Smart writes. “Remember, it’s not a real bubble until the industry starts issuing lots of stock. Meanwhile, there may even be some early signs of the productivity gains ahead.”
That said, Smart is cautious, because he sees even more reason to be concerned, reeling off nearly a dozen reasons investors might want to think about taking some profits.
First, while growth might seem strong now, it’s slowing with the International Monetary Fund forecasting just 1.5% growth for developed economies in 2026. Although much of the uncertainty around tariffs have been reduced and the worst impacts excepted away, the fact remains that “tariffs are still an inefficient, distortive and regressive tax. They erode profits and hurt competitiveness — even when rolled out carefully,” Smart writes.
They may also be one part of persistent inflation, which seems stuck around 3%, tying the Fed’s hands in terms of rate cuts. Unless of course the Federal Open Market Committee, which is increasingly dominated by Trump appointees, stops caring much about inflation—a whole different problem.
Either way, interest rates are a problem, Smart notes, as tightening by the Bank of Japan will redirect a huge supply of assets away from U.S. Treasuries—see Barron’s explainer of the yen carry trade, which has funded U.S. government debt purchases for years. And speaking of government debt, Congress’s choice to completely ignore the problem means that net debt held by the public may reach 118% of GDP by 2035, raising borrowing costs.
Elsewhere, he’s concerned that the U.S.-China relationship will continue to sour, stock valuations are near all-time highs, and while the biggest AI players still have momentum, that concentration is a risk to the market, and will also add to job losses in the next few years. Jobs are already a worry however, as the limited data we have suggests higher unemployment and weaker job growth. That can be partially explained by deportations but “a smaller labor force also means a more expensive labor force and fewer consumers in stores.”
Likewise, Apollo Global Management Chief Economist Torsten Sløk is out with his own list of top concerns for 2026 on Thursday.
He is worried that the U.S. economy will reaccelerate but so will inflation, which is already at a high level. Moreover, the “new Fed Chair [may] lower interest rates purely for political reasons,” he notes.
Then there is the potential for the AI bubble bursting, which would be a drag on corporate and higher-end consumer spending, Slok writes. And a dramatic increase in fixed-income issuance next year, from both governments and AI hyperscalers could lead to a glut that puts upward pressure on rates.
Of course “There are always upside and downside risks to the outlook,” as Slok notes, and there were plenty of reasons to worry about 2025 too. So this new crop of concerns might turn out to be much ado about nothing. Still, it never hurts to be prepared.
