GIVING THE BULL THE BENEFIT OF THE DOUBT

KIPLINGER: What do you see ahead for financial markets in 2026? Do you have a target price for the S&P 500?

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LERNER: We don’t do targets. When we think about markets, we take a weight-of-the-evidence approach and keep an open mind. We look through four main lenses: history, the economic cycle, fundamentals and market signals.

Okay, let’s start with history. Warren Buffett said if all you needed was history, the richest people would be librarians. But it’s a good starting point. There’s an old saying that’s still true: Bull markets don’t die of old age. We’ve had 10 bull markets since 1957. Seven of those have lasted more than three years. In year four, you had further gains every time—an average of 16%. But there’s a caveat: Year three tends to be choppy, with an average return of 1%. We really didn’t have much of that in 2025, so maybe that takes a little bit away from the next year’s gain. Either way, the average cumulative price gain for those seven bull markets is 229%. At this point [through October 31], we’re up 91%. That suggests the bull market has further to go.

We also did a study that found when the Federal Reserve cuts interest rates with the market near record highs, a year later, stock prices are up more than 90% of the time, with an average gain of 13.1%—with the key caveat that we don’t fall into recession. And I should add that as you move into the fourth year of a bull market, it’s not unusual to see pullbacks, with drawdowns of 8% to 10% common.

What’s your take on the economy? We’re looking for a slight uptick in economic growth in 2026, after landing at about 1.8% in 2025. So a little bit better, but not gangbusters. The economy helps us to say whether we want to be on offense or defense or somewhere in between. We still want to be tilted toward equities, because we think there's further to go. But we're not at maximum equity exposure because it's not the beginning of the cycle.