Every once in a while, someone on Wall Street gets the big call so right that you can’t help but listen when they speak again.
Sam Stovall has been one of those voices for decades. After correctly navigating the post-pandemic surge and the surprisingly strong 2024-2025 period, he just dropped his 2026 outlook – and it’s raising eyebrows in the best way possible.
His base-case? The S&P 500 climbs another 10% next year to close around 7,400. That would mark the fourth consecutive year of double-digit gains – something that has happened only a handful of times since World War II.
Why the Bull Market Might Not Be Tired Yet
I’ve been around long enough to know that when everyone starts asking “isn’t this rally getting old?”, that’s usually when it has more room to run. Stovall seems to agree.
The core of his optimism isn’t some wild hope about AI mania forever. It’s actually pretty old-school: decent economic growth, inflation cooling again, and corporate profits still growing at a healthy clip.
In plain English, the U.S. economy is expected to keep expanding without overheating, the Fed should be able to ease rates a bit more, and companies should keep making more money. When those three things line up, stocks usually do just fine.
The Earnings Picture Looks Surprisingly Solid
Here’s the part that really caught my attention.
Wall Street currently expects S&P 500 operating earnings per share to jump 10.9% in 2025, then accelerate to 13.4% in 2026 and 14.2% in 2027. Those aren’t nose-bleed numbers, but they’re comfortably above the long-term average.
“All eleven sectors are projected to post earnings growth in 2026, with four of them delivering double-digit increases.”
– Veteran equity strategist
Think about that for a second. The last few years we’ve basically been riding on the backs of seven mega-cap tech names. If the earnings recovery truly broadens out next year, the rally could become much more durable – and much less fragile if a couple of the Magnificent Whatever decide to take a breather.
Three Sectors He Loves Right Now
Stovall isn’t hiding his favorites. He’s overweight three sectors in particular, and the reasoning behind each one makes a lot of sense when you unpack it.
- Financials – Lower rates, tighter credit spreads, a pickup in M&A, and improving loan quality. Banks and insurers have been in the penalty box for a while; 2026 could be their coming-out party.
- Communication Services – Digital advertising keeps growing, mid-term elections bring a flood of political spending, and big sporting events (Winter Olympics, World Cup) mean massive ad dollars.
- Information Technology – The AI infrastructure build-out is still in early innings, capex visibility is improving, and cheaper financing helps everyone from chip makers to software giants.
Personally, I find the financials call the most intriguing. The sector is still trading at a noticeable discount to the broader market, and the macro setup finally looks friendly again.
But He’s Not Ignoring the Risks
One thing I respect about Stovall’s work – he never sugarcoats the bumpy parts.
While he believes the bull market stays alive through 2026, he’s explicitly calling for higher volatility and a below-average full-year return compared to the monster gains we’ve enjoyed lately.
Translation: Don’t expect another effortless 25% melt-up. We’ll probably see some 10-15% drawdowns along the way, maybe even a few “is this the top?” moments that make your palms sweat.
In my experience, that’s actually healthy. Trees don’t grow to the sky in a straight line, and a few shakes usually separate the long-term holders from the tourists.
Putting It All Together – What Should You Might Consider
If you’ve been sitting on the sidelines waiting for a crash that never quite arrives, 2026 probably won’t be the year it finally shows up either – at least according to this view.
That doesn’t mean pile in with 200% leverage. It means staying invested, rebalancing when sectors get too stretched, and maybe tilting a little toward the areas that look poised to lead the next leg.
For most of us with long-term goals – retirement accounts, kids’ college funds, that beach house we keep daydreaming about – another year of positive returns, even if they come with some turbulence, is a lot better than the alternative.
At the end of the day, Stovall’s 7,400 target isn’t the most aggressive forecast on the Street, and it isn’t the most cautious either. It feels grounded, data-driven, and realistic – exactly the kind of outlook that has served patient investors well over the decades.
Whether the S&P 500 actually tags 7,400 or falls a bit short, the broader message seems clear: the path of least resistance for U.S. stocks still points higher.
And honestly? After the ride we’ve had since late 2023, I’ll happily take “higher with some bumps” over the alternatives any day of the week.
