Wall Street is growing increasingly optimistic about the stock market heading into 2026 after the S&P 500 (^GSPC) and Dow (^DJI) hit record highs in the same week the Federal Reserve cut interest rates.
Adding to the momentum, Chairman Jerome Powell’s highly anticipated comments at the central bank’s news conference after its two-day policy meeting turned out to be less hawkish than expected.
“I actually thought he was kind of a chicken hawk in his statement. I didn’t see him as very hawkish at all,” said David Waddell, CEO of Waddell & Associates. Yesahoo Finance.
Waddell noted that President Trump would seek to replace Powell, whose term ends in May, with someone who favors lower rates.
“Trump is just going to replace it with a dove. So we’re going to get a lot of monetary stimulus. We’re going to get a lot of fiscal stimulus,” Waddell added.
Learn more: How the Fed’s Rate Decision Affects Your Bank Accounts, Loans, Credit Cards, and Investments
Meanwhile, the Fed’s upward revision of GDP to 2.3% for 2026 will likely result in higher revenues, higher profit margins and earnings growth.
These expectations are fueling bullish price targets on Wall Street.
Veteran strategist Ed Yardeni also sees the index reaching 7,700, recently increasing the probability of his “Roaring Twenties” scenario to 60%, citing, among other reasons, the tax benefits of the Big Beautiful Bill and the AI-driven tech boom.
Meanwhile, Oppenheimer set a target of 8,100 for the S&P 500 index for 2026, also seeing the change in monetary and fiscal policy as a major driver of earnings.
“It has to be good for businesses and good for consumers. That will be reflected in stocks,” John Stoltzfus, Oppenheimer’s chief market strategist, told Yahoo Finance last week.
UBS is equally positive, with strategists setting a target of 7,700 for December 2026, citing “resilient economic growth, Fed rate cuts and a boom in AI capital spending.”
Goldman Sachs analysts forecast S&P 500 earnings growth of more than 12% in 2026, compared to a Street consensus of 14%.
The index’s seven largest stocks, including Nvidia (NVDA), Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL, GOOG), Amazon (AMZN), Broadcom (AVGO), and Meta (META), currently account for about a quarter of the index’s profits.
But Goldman plans to expand participation.
“We expect that favorable macroeconomic effects related to accelerating economic growth and lower margin tariffs will support an acceleration in the rate of earnings growth for the remaining 493 stocks,” Goldman’s Ben Snider wrote in a note Thursday.
