2026 Forecast: Sixth Year of Presidency & AI Super Boom Fuel the Bull By: Jeffrey A. Hirsch & Christopher Mistal | December 11, 2025 | Email | Print

Wishing you Happy Holidays and all good things in the New Year as we look ahead to 2026.

 

Please take a moment and register for our members’ only webinar, 2026 Annual Forecast & January 2026 Outlook on Wednesday December 17, 2025, at 4:00 PM EDT here:

 

https://attendee.gotowebinar.com/register/5222640001972119385    

 

Please join us for an Almanac Investor Member’s Only discussion of recent market action with time for Q & A at the end. Jeff and Chris will cover their 2026 Annual Forecast and outlook for January 2026. They will also share assessments of the economy, the Fed, inflation, geopolitical events as well as relevant updates to seasonals now in play.

 

If you are unable to attend the live event, please still register. Within a day of completion, we will send out an email with links to access the recording and the slides to everyone that registers.

 

After registering, you will receive a confirmation email containing information about joining the webinar and a reminder message.

 

We are switching things up this year to get our 2026 Forecast out to you early. Today we present to you our updated 2026 Annual Forecast. Spoiler alert: it’s a little more bullish than initially anticipated and what we published in the 2026 Stock Trader’s Almanac on pages 10-11 dated May 30, 2025. We are also focusing this issue purely on the forecast. When we publish the “January 2026 Almanac & Vital Stats” just before our Christmas-New Year’s break it will include the “Pulse of the Market” and “Market at a Glance.” So here is the updated December/early-January Publication Schedule.

 

• 2026 Annual Forecast today December 11

• Monthly Member’s Webinar Wednesday, December 17, 4pm ET

• Stocks Issue December 18

• Free Lunch Stock Picks December 20

• January 2026 Almanac (Including “Pulse of the Market” & “Market at a Glance”) December 23

• Office Closed December 24 to January 1 

(Unless there is a major market or world event that warrants a Special Update)

• Santa Claus Rally reading January 5

• ETF Issue & First 5 Days reading January 8 

 

Our 2025 Forecast expressed concern about inflation, valuations and the older weak post-election patterns, but expected the bull market to continue through 2025. Though we anticipated a bumpier ride than the prior two years. The market sure hit some bumps early on with the DeepSeek scare in January and the Trump tariff tumble that drove the market into a near bear market correction from mid-February to the low on April 8 a week after the now notorious “Liberation Day.” The Dow dropped 16.1% from its January 30 high, S&P fell 18.9% from its February 19 high, NASDAQ plunged 23.9% from its February 19 high and the VIX volatility index spiked to 60 indicating maximum fear as the market put in the low for the year.

 

Turns out President Trump’s “Art of the Deal” was a bit disruptive. The market has been on a 7-month tear since the April low with another bump in November driven by mixed signals from the Fed on rates and a deleveraging in cryptocurrencies. But overall, the retraction of much of the tariffs, tax reductions and deregulation as well as the AI tech boom, drove stocks through resistance with the indexes (save the Russell 2000 until now) logging successive new highs all summer long into September and October. As we have pointed out when the market rises during bearish seasonal periods it’s a bullish indicator. 

 

Along the way we moved our outlook increasingly toward our 2025 Annual Forecast Best Case Scenario for above average gains of 12-20%. For the past few months, we have been expecting a Q4 rally to propel the S&P 500 to 7100 by yearend for another 20%+ annual gain. At today’s close we are only 2.9% below 7100 on the S&P 500. We expect more new highs across the board before yearend as the second half of December is historically bullish and the market has tracked the usual first half of December choppy mixed trading before the year-end rally.

 

Politics and personality aside the Trump administration, though more aggressive and disruptive than last time, has proven to be more experienced and effective than feared. Inflation remained contained and U.S. economy continued to register steady growth without overheating or stalling. Geopolitics, especially in the Mideast, cooled. As we had suggested in our Best-Case Scenario, 2025 has tracked more of a recent post-election pattern as the best year of the 4-year cycle since 1985. 

 

 

Base Case: 70% Probability – Some volatility, most likely in Q3 of 2026. Late 2026 rally in Q4 ultimately pushes the market to historical sixth year of presidential administrations gains for the year of around 8-12%. Inflation concerns linger but do not grow, the administration’s numerous policy changes deliver mixed yet positive results, new Fed chairman has seamless transition, and the labor market remains reasonably stable while the AI-fueled spending and development “Super Boom” continues.

 

Best Case: 10% Probability – Trump administration’s tariff, tax, immigration, and fiscal policy produce an acceleration of economic activity with limited collateral damage (volatility). Corporate profits continue to grow and estimates move steadily higher. Inflation expectations cool and it trends back towards the Fed’s 2% target. Labor market firms and begins adding 100k+ net new jobs monthly. President cements his legacy, his party retains control of Congress, and the market blasts higher. Full-year gains exceed 20%.

 

Worst Case: 20% Probability – An old-school, ugly and volatile midterm year. Policy flops, inflation surges, labor market briskly deteriorates, geopolitical hotspots flare, corporate earnings rollover and/or AI-stock valuations get reset. Mild bear market with economy teetering on recession. Negative to flat full-year performance with broad losses across asset classes.

 

 

We have updated our 4-Year Presidential Election Stock Market Cycle chart to include all the years from 1949 to 2024 compared to the current cycle so far. The short-lived, steep, tariff-driven correction earlier this year sure gives off a bearish vibe. While not an official bear market, it does seem to have reset the market, putting us in a quasi-new bull market scenario. It also likely pulls much of the usual midterm election bearish action forward, suggesting any 2026 midterm year weakness could be mild. The market clearly shrugged off many headwinds this year and while the magnitude was rather amplified 2025 did track the general seasonal trend of post-election years, especially the more bullish pattern since 1985, and is ending the year on high note.

 

 

So many market pundits have been commenting on how difficult midterm election years have been for the markets that it is unlikely it will be anywhere near as bad as the doomsayers warn. And while it’s true that overall midterm years are the worst year of the 4-year cycle, it is not the case for the second midterm year, especially second term republicans. 

 

The chart below of the S&P 500 Midterm Election Year Seasonal Pattern has been tweaked from what originally appears on page 10 of the 2026 Almanac. We stripped out all Republican Midterm Years for clarity since it’s not much different than All Midterm Election Years. But mostly it’s so we can focus on the patterns that are driving our Base Case Scenario: the more bullish 6th Year of Presidency and 2nd Republican Midterm Years patterns. Also of note, the STA Aggregate Cycle pattern (all years, all midterm years and 6th year of the decade) is right in there on the more bullish side.

 

As President Trump’s time in office truly begins to wind down in essence next year, as it does for all two-term presidents, 2026 and second midterm years in general are all about president’s cementing their legacy. Like it or not, Trump 2.0 has delivered on many of his promises, particularly regarding fiscal policies. The Big Beautiful Bill delivered tax reform, there has been a reduction in regulations, inflation is down, growth is up and the worst-case negative impact from tariffs has not materialized. 

 

Add that the Fed is clearly in an easing cycle. They have stopped quantitative tightening (QT) and reintroduced some quantitative easing (QE), for at least the short term, to shore up their balance sheet for yearend liquidity requirements. This means they are no longer letting bond holdings mature and roll off their balance sheet and instead buying treasuries and mortgage-backed securities, which recycles money into the system and generally stabilizes rates. 

 

 

 

After briefly turning negative in Q1, economic activity appears to be back on track with real Q2 GDP growth rebounding to 3.8% and although the Q3 GDP initial estimate has been delayed due to the federal government shutdown, the Atlanta Fed’s GDPNow model is forecasting 3.6% growth. Back-to-back quarters of respectable growth have pushed corporate profits to record highs. Turning to our Four Horsemen of the Economy chart which depicts DJIA, Consumer Confidence, our inflation chart showing 6-month exponential moving averages of CPI and PPI and the unemployment rate overlaid with the recession bars. Note that we are still including the 2022 Q1 and Q2 recession we deem transpired based on the pre-Covid definition of two back-to-back negative quarters of GDP.

 

 

The lead horse of our Four Horsemen of the Economy is The Dow Jones Industrial Average. And while Papa Dow has modestly lagged the S&P and NASDAQ this year due to its lower exposure to technology it is still in a solid uptrend and closed at a new all-time high today. Today’s all-time high brings its total to 18 so far in 2025. More highs for Dow are likely in the historically strong second half of December.

 

Consumer Confidence is apparently on the rocks hitting its lowest level ever in a dataset that starts in 1960. This is puzzling given robust Thanksgiving holiday travel this year and record Black Friday/Cyber Monday spending. Inflation may be on everyone’s mind, but it does not seem to be curtailing consumer spending all that much. Larger expenditures are likely being delayed like a new auto or a house. For those that recall the gas lines, even/odd days, double-digit mortgage rates, and the ever-present threat of nuclear war, the current economic landscape does not seem all that bad. There are certainly many areas that need improvement, mainly affordability of food, housing, healthcare and education.

 

Looking at our inflation chart of the 6-month exponential moving average of CPI and PPI, consumer prices as measured by CPI appear to be leveling off at uncomfortable level at just under 3%, while producer prices (PPI) are trending higher. Part of this new trend higher in the PPI could be delayed impacts of higher tariffs and another source is likely surging electricity prices due to AI demand. This is a trend that warrants close attention.

 

Also concerning is the uptrend in the Unemployment Rate this year. Recent labor market data points have been stable, but if that changes and Unemployment picks up along with inflation and they both trend higher that would be concerning. But for now, Unemployment Rate remains reasonably low and stable. Look at initial weekly claims data for early signs of trouble. Any persistent and steady increase there would likely lead to a higher unemployment rate.

 

 

Weekly, not seasonally adjusted claims data has spiked recently, but the current spike does not yet look any different than past spikes that have occurred near year end and continued into the following year. As long as weekly claims data remains in line with recent trends, we expect the labor market will hold up. However, any jump above recent yearly highs could potentially be an early warning sign.

 

 

It has been quite a bull run these past three years. We are on the precipice of another 20+% yearly gain for the S&P 500 – it is now up 93% since the October 2022 bear market low. But just because it’s been up so strongly three years in a row does not mean it must end. This AI spinning wheel looks like it has legs. From 1995 to 1998 S&P was up 20+% four years in a row and up 19.5% in the fifth year. Like the early days of the computer tech/internet boom of the mid-1990s the AI race is on. 

 

Midterm election year 2026 will be a pivotal year for the market, but it could also be another standout year. We expect the AI-fueled Super Boom to continue. The major players have made substantial investments and are likely to continue to pursue returns on their spending to date, no matter what the cost. Elevated valuations may give traders and investors reason to pause and consider, but the AI race is global, and no one wants to be left out or behind.

 

We await readings from our January Indicator Trifecta, page 20 of 2026 Almanac. Combining our Santa Claus Rally, First Five Days, and January Barometer into a single indicator has produced compelling results. The most bullish outcome has historically been when all three were positive. When all three are up the S&P 500 has been up 90.6% of the time, 29 of 32 years, with an average gain of 17.7%, and the next 11 months are up 87.5 % of the time, 28 of 32 years, with an average gain of 12.6%.

 

Happy Holidays & Happy New Year, we wish you all a healthy and prosperous 2026!