n its forecasts for the year 2026, LPL Finance (NASDAQ:LPLA) sees modest gains for the S&P 500 next year.
Leading investment advisor and broker dealer expects The S&P 500 will end the year somewhere between 7,300 and 7,400which would represent approx Gains ranging between 7% and 8% in 2026.
“the The bull market looks set to extend its run into 2026“However, with valuations rising and midterm election years often bringing more volatility, gains may be more muted in 2026,” the 2026 outlook stated, driven by continued enthusiasm around AI and continued easing of monetary policy by the Fed.
LPL Chief Equity Strategist Jeffrey Buchbinder He pointed to several forces that would extend the bull market into its fourth year, most notably continued investment in artificial intelligence, federal easing, and favorable federal fiscal policy.
Perhaps the most powerful investment cycle affecting stocks is the wave of capital investment in artificial intelligence. Bookbinder wrote that consensus estimates for 2025 capital expenditures from the Big Five — Alphabet, Amazon, Meta, Microsoft, and Oracle — in 2025 are expected to reach about $400 billion. In 2026, the number is now expected to be close to $520 billion, an increase of nearly 30% from this year’s estimate and an estimated 1.6% of the US economy, as measured by nominal gross domestic product.
This increase in investment in AI will help drive the economy and corporate profits.
“There is nothing bigger than artificial intelligence at the moment, and this is unlikely to change any time soonBuchbinder wrote.
Double-digit earnings growth
Wall Street analysts expect Double-digit earnings growth for S&P 500 companies Next year, powered by AI, with Magnificent 7 shares continuing to lead the way.
“While the wide gap between Magnificent Seven’s earnings growth and the rest of the market is likely to persist into 2026, supporting growth in large-cap stocks, We expect this gap to narrow as the year progresses“This is something to watch closely when the calendar turns,” the chief equity strategist wrote It could result in the market shifting to value stocks“.
The Fed’s rate-cutting cycle should also provide a boost to stocks next year, Buchbinder added.
“If the economy holds up, cycles of interest rate cuts tend to be followed by stock market gains. Stocks prefer interest rate cuts that are considered luxury rather than emergencies — and we’d rank the upcoming cuts as the former. He wrote that the Fed is normalizing interest rates, not avoiding an impending recession.
In past rate cutting cycles, the S&P 500 was 13% higher on average after 12 months. Moreover, when the US economy was not in a recession due to interest rate cuts, the average 12-month return for the S&P 500 was 18%.
Key risks facing stocks are potential AI disappointments, upward pressure on long-term interest rates, global trade tensions, and geopolitical instability.
What about reviews?
Buchbinder said prevailing trends should provide favorable conditions for stocks to keep their already high valuations in check.
But even if corporate profits grow by double digits this year and next, they will grow It is difficult to prove that the price-to-earnings (P/E) ratio is higher than the current ratio of 22 times. The growing economy will drive similar single-digit revenue growth as in 2025, while margins are expected to rise slightly as tariffs are fully absorbed and the benefits of AI increasingly penetrate, offering the potential for double-digit earnings growth. This means that earnings growth rather than multiple P/E expansion is more likely to drive stock prices higherBuchbinder wrote.
In terms of sectors, LPL is Overweight in communications services and underweight in real estate. They are neutral on the rest, however Healthcare is on their radar For possible upgrade in early 2026.
The company advises investors to maintain their current allocations, while… I’m looking for “pullbacks to selectively increase equity exposures”.
while Standard & Poor’s 500 At 7300 to 7400 is the base forecast, It could reach 7,800 by the end of 2026 If there are greater productivity gains from investing in AI. They give it a 25% chance. On the negative side, Recession fears could lead to a 5% to 7% decline, which would put the index in the 6,200 to 6,300 point range.. They give this scenario a probability of 15%.
