Heartwarming holiday video of rescue dog choosing Christmas toys
The tail is wagging at the Benton Franklin Humane Society in Kennewick, Washington. There, rescue dogs can choose their own Christmas presents from a pile of sweets.
As 2025 draws to a close, the economy appears to be stabilizing, the S&P 500 index is up more than 15% so far this year, and inflation is relatively calm. But Americans have a pessimistic view of inflation, politics, and the job market that is typically only seen during recessions.
This is a good reminder that there can be a disconnect between the big picture and America’s individual wallets. But with most strategists expecting similar conditions to continue in 2026, it’s also an opportunity to dig into the larger drivers of what is expected to be a relatively healthy economy and stock market.
“We have a constructive outlook for 2026,” said Rob Howarth, senior investment strategy director at U.S. Bank. “There are risks that we need to be aware of, but we think this is a market and economy that could repeat the success we’ve seen over the past few years.”
Will the stock market rise in 2026?
Most analysts expect the stock market to perform well next year, supported by spending on artificial intelligence technology, Federal Reserve interest rate cuts and tax cuts.
Deutsche Bank strategists expect the S&P 500 index to end 2026 at 8,000, which would be an increase of nearly 18% from the index’s closing level of about 6,737 on Dec. 17. Investment bank Morgan Stanley sees a 14% rise. LPL Financial’s forecast is for a level of 7,300 to 7,400, which would represent an increase of only about 8%.
What will AI bring to the economy?
Like the average American, professional investors are wary of AI.
“This phase of the investment cycle, which is likely to last for the next three to five years, will be a double-edged sword; on the one hand, it will encourage the economy to replace old tools with new ones,” Vanguard analysts said. “However, the investment environment will become increasingly narrow and investors will find it difficult to avoid risk.”
What does “narrow” mean? As shown in the graph below from Apollo Chief Economist Torsten Slok, most of the stock market performance over the past few years has been concentrated in seven high-growth stocks: Alphabet, Amazon, Apple, Metaplatform, Microsoft, Nvidia, and Tesla.
Many analysts view this concentration of success as worrying. But the Deutsche Bank team said it expects earnings growth for tech stocks to slow, even as growth in other S&P 500 stocks is likely to accelerate.
What stocks will do well in 2026?
U.S. Bank’s Howarth told USA TODAY that investors have recently begun to focus on companies in the industrial sector that could benefit from the AI boom, such as General Electric and RTX (formerly Raytheon). He believes this is a sign that the market is getting healthier.
Trust Wealth recently upgraded the sector and now offers investment through the State Street Industrial Select Sector SPDR exchange-traded fund (ETF) under the ticker XLI. The trust also remains bullish on the information technology sector, which includes Mag7’s leading companies and can be tracked through State Street’s XLK ETF.
Meanwhile, Goldman Sachs’ team of strategists is taking a broader view, recommending that investors diversify their holdings outside the U.S., particularly across emerging markets and sectors such as Brazil, India and China.
Finally, another piece of advice Goldman offers is to “stay invested,” reminding us that financial markets can be volatile. Both stocks and bonds fell sharply after the White House announced the tariffs in April, but recovered quickly. Investors who stick to their policies generally perform better than those who try to time the market.
