Santa’s rally usually begins in late December, but Wall Street is already showing signs of holiday cheer, which could lead to another big year for stocks in 2026.
During the shortened Thanksgiving week, the Dow Jones Industrial Average jumped more than 3%, the S&P 500 jumped almost 4%, and the Nasdaq jumped more than 4%.
This follows heavy selling earlier this month on fears of a bursting AI bubble and hints that the Federal Reserve would not cut interest rates as much as expected.
“Santa is back,” market veteran Ed Yardeni said in a note Saturday.
But panic selling in bitcoin, which he and others on Wall Street said was a factor in the earlier downturn, has eased and stocks are poised for a year-end rally.
Yardeni supported his view that the S&P 500 would reach 7,000 by the end of the year and suggested that the broader market index could even reach that milestone in the coming week.
If that happens, the S&P 500 will end 2025 with a 19% gain, after gains of more than 20% in each of the past two years.
And the market could still see double-digit gains from there. Earlier in the week, Yardeni reaffirmed his forecast for the index to rise to 7,700 in 2026, indicating a 10% increase from his 2025 forecast.
“We predict that 2026 will be just another year of the Roaring Twenties 2020, which remains our base case,” he wrote. “Our Roaring Twenties scenario has played out for six years since we first predicted it in 2020.”
GDP growth, consumption and corporate profits have been growing at a brisk pace, and Yardeni said the decade should avoid an economy-wide recession, while “rolling recessions” could hit different sectors at different times.
Deutsche Bank is even more optimistic, predicting that the S&P 500 will end next year at 8,000 points, representing a 17% jump from Friday’s close.
“We believe stocks will continue to benefit from the boom in multi-asset capital inflows,” the analysts wrote in a note. “As earnings continue to rise and companies indicate they are sticking to their capital allocation plans, we expect strong buybacks to continue.”
Separately, JPMorgan expects the S&P 500 to end 2026 at 7,500 points, but adds that it could reach 8,000 points if the Federal Reserve continues to cut rates.
Analysts cited above-trend profit growth, booming AI capital spending, rising shareholder payouts and easing fiscal policy via tax cuts under President Donald Trump’s One Big Beautiful Bill Act.
And if inflation slows more than expected, that would pave the way for additional rate cuts from the Fed, beyond the two additional cuts JPMorgan is considering.
“Moreover, the benefits of deregulation and expanded AI-related productivity gains remain underestimated,” the bank said.
