AI momentum, Fed, US-China ties among major swing factors

The US stock market is closing the books on a third straight year of double-digit percentage gains.

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A fourth stellar year in 2026 may be a tall order, requiring strong earnings, a dovish Federal Reserve and strong artificial intelligence spending.The bull market for US stocks that started in October 2022 has been propelled by Al optimism, interest rate cuts and the economy continuing to grow despite fears of a recession. The gains were achieved during a rollercoaster year which saw shares dive after the Trump administration unveiled bigger-than-expected tariffs in April. The benchmark S&P 500 is now up over 17% in 2025 with a few trading days left, after rising 23% in 2024 and 24% in 2023.

For another year of strong double-digit percentage returns, markets need “everything firing on all cylinders,” said Sam Stovall, chief investment strategist at CFRA.

“A lot of headwinds indicate to me that while we could end up with a surprisingly good year, I don't think it will be another great year,” said Stovall, who has a year-end 2026 price target of 7,400 which would be up about 7% from current levels Many market strategists foresee a strong 2026, with some S&P 500 targets equating to over 10% gains, including Deutsche Bank's target of 8,000, which is roughly 16% higher for the index.

Stock bulls point to the upbeat outlook for US corporate profits. Earnings among S&P 500 companies are projected up over 15% in 2026, on the back of a solid 13% rise in 2025, according to Tajinder Dhillon, head of earnings research at LSEG.