Wall Street has great expectations for the next year in the stock market

With end-of-year outlooks largely in — Bank of America equity analysts dropped theirs Tuesday — we figured it was worth taking stock of the prognostications from some of Wall Street’s more high-profile equity strategy shops.

True to form, these professional market watchers are bullish. Not shocking, considering the institutional biases of those employed by the securities industry — and the fact that the stock market usually does rise.

More interesting are the rationales for their projections, which largely center on two key issues facing investors and traders: the paths forward for the AI investment boom and the Federal Reserve.

Deutsche Bank equity strategists see the largest jump, thanks to a combination of robust earnings growth in 2026 and price-to-earnings multiples that they expect to stay near some of the most elevated levels we’ve seen since the dot-com boom of the late 1990s.

“We expect multiples to sustain if not push higher against the backdrop of a robust demand-supply balance for equities,” Deutsche Bank analysts captained by Binky Chadha wrote.

Morgan Stanley analysts are only slightly less optimistic, writing in their outlook — issued in the middle of November — that another factor that may keep valuations elevated will come from easier monetary policy than is currently baked into the market prices. (For more on how the Fed and interest rates affect valuations, read this.)

“We think that moderate weakness in lagging labor data and the administration’s desire to ‘run it hot’ will lead to an accommodative monetary policy backdrop involving both rates and the balance sheet,” wrote MS analysts led by Mike Wilson.

RBC equity analysts, led by Lori Calvasina, also see a helpful hand coming from expected Federal Reserve rate cuts.

“Fighting the Fed doesn’t make sense,” they wrote, adding that “historically, when the Fed has made modest cuts in a
12-month period that amount to 1% or less, the S&P 500 has gone up by 13.3% on average during that same time period.”

JPMorgan’s call for the index rising to 7,500 next year likewise hinges on the US central bank.

In the report, written by Dubravko Lakos-Bujas and team, they say that view “is anchored on our JPM Economics view of two more cuts followed by an extended pause. However, should the Fed ease policy further (due to improving inflation dynamics), we see greater upside with the S&P 500 surpassing 8,000 in 2026.”

Goldman Sachs’ team of analysts led by Peter Oppenheimer — who see the S&P 500 at 7,600 next year — likewise think high price-to-earnings multiples might actually now be normal, reflecting lower interest rates and higher earnings.

“While valuations are very high today relative to history, multiples have generally trended higher during the last several decades,” they wrote. “This trend can largely be explained by the trend lower in interest rates and higher in corporate profitability.”

AI air pocket ahead?

Rivaling the Fed as an analytical input is the path forward for the AI investment boom that’s been driving both the economy and the markets this year.

HSBC analysts led by Nicole Inui think another year of high-flying gains could be in the cards, partly driven by continued big spending from hyperscalers.

“Our base case is for the Fed to remain on hold, the economy to slow but remain resilient as AI capex spend accelerates, and earnings growth to maintain a double-digit pace — buoyed by tech and AI but also broadening to other sectors benefiting from AI spend, adoption, and easier comps,” they wrote.

Likewise, Venu Krishna and colleagues at Barclays (target of 7,400 in ’26) predict the “AI story keeps rolling, despite recent volatility sparked by capex and financing concerns, as compute demand continues to scale and monetization grows to encapsulate paid users, ads, and enterprise/agents.”

On the less bullish side, Savita Subramanian’s team of stock analysts at Bank of America sees more lackluster results in 2026, after three sizzling years of market gains led by megacap tech companies.

“On AI, in our view, investors should get ready for an air pocket. Monetization is to be determined (TBD) and power is the bottle neck and will take a while to build out,” they wrote, adding that “for now investors are buying the dream.”