Interactive Brokers chief strategist Steve Sosnick thinks investors should tap the brakes on their 2026 optimism. While most of Wall Street is calling for gains next year, Sosnick expects the S&P 500 to finish 2026 at 6,500, which would be about a 5 percent drop from Monday’s close. That makes his forecast the most cautious major prediction so far. For comparison, Bank of America’s outlook calls for 7,100.
Sosnick’s cautious tilt comes from years managing risk on options desks, where spotting “monsters under the bed” was part of the job. His biggest concern now is the looming leadership change at the Federal Reserve. With Jerome Powell’s term ending in May, markets are preparing for President Trump’s likely nominee, White House economist Kevin Hassett. Some investors fear that Hassett’s close ties to the administration could spark worries about the Fed’s independence and push long-term rates higher.
Sosnick sees the 10-year Treasury yield climbing to 4.45 percent next year from its current 4.16 percent. A sharp move higher could test stocks, since rising rates often pressure valuations. He added that markets tend to “test” incoming Fed chairs, especially when inflation is still running above target.
The other pressure point is the AI trade. Sosnick said investors are growing uneasy about whether massive spending from AI hyperscalers will translate into real profits. The enthusiasm is clear, but the payoff timeline is not. He compared the moment to the late 1990s, noting that no one back then predicted the downfall of Netscape or Yahoo. In the same way, today’s market still has no clear read on which companies will emerge as long-term AI winners.
Sosnick emphasized he is not bearish. He just thinks the market has been “zigging” in one direction for too long and that a little retrenchment would not be surprising.