Wall Street is rolling into 2026 with high hopes for stocks. Nearly every major strategy team expects the market to rise next year, leaning heavily on two drivers: the path of the Federal Reserve and whether the AI boom still has fuel. The usual bullish bias is alive and well, but the reasoning behind the optimism is where things get interesting.
Deutsche Bank is the most upbeat. Its strategists expect a sharp earnings rebound in 2026 and believe today’s lofty price-to-earnings ratios can hold near levels last seen in the dot-com era. They argue that demand for equities will stay strong enough to keep valuations propped up. Morgan Stanley is a bit less exuberant but still bullish, expecting an easier Fed backdrop as the administration favors running the economy hot, which could lift multiples.
RBC’s team says history is on the bulls’ side. When the Fed cuts modestly, around 1 percent over a year, the S&P 500 has typically gained more than 13 percent. JPMorgan takes a similar view and says two Fed cuts and a long pause should push the index toward 7,500, with even more upside if inflation cools enough to justify further easing. Goldman Sachs argues that today’s high valuations might be the new normal thanks to decades of lower interest rates and stronger profitability.
But the Fed is not the only force markets are watching. The future of the AI boom is the other dominant theme. HSBC thinks AI spending remains the backbone of the economy next year, with hyperscalers ramping up capex and earnings growth staying solid. Barclays also believes the AI trade keeps rolling as compute demand expands and monetization spreads across paid users, ads, and enterprise agents.
Bank of America stands out as the lone skeptic. Its analysts warn that investors should brace for an air pocket in AI. In their view, monetization is still unproven and power constraints will take time to fix, leaving room for disappointment after three blockbuster years for megacap tech. For now, they say, investors are buying the dream.