The Santa Claus rally usually commences in late December, yet the financial markets are already exhibiting indications of festive optimism, possibly foreshadowing another strong year for equities in 2026.
TL;DR
- Financial markets show early festive optimism, hinting at a strong 2026 for equities.
- Dow, S&P 500, and Nasdaq saw significant gains before Thanksgiving week.
- Ed Yardeni predicts S&P 500 reaching 7,000 by year-end, with 7,700 by 2026.
- Deutsche Bank forecasts S&P 500 at 8,000 by end of 2026, citing inflows and buybacks.
In the week leading up to Thanksgiving, the Dow Jones Industrial Average saw a gain exceeding 3%, the S&P 500 experienced an increase of almost 4%, and the Nasdaq advanced by over 4%.
This follows a significant decline earlier in the month due to concerns about a potential AI market correction and indications that the Federal Reserve may not lower interest rates as much as expected.
“Santa’s back,” market veteran Ed Yardeni declared in a note on Saturday.
The frantic selling of bitcoin, which he and other Wall Street figures identified as a contributor to the prior slump, has diminished, and equities are positioned for a rally as the year concludes.
Yardeni supported his prediction that the S&P 500 would reach 7,000 by year's end, proposing that the general stock market gauge might achieve this target as soon as the upcoming week.
Should that occur, the S&P 500 is projected to conclude 2025 with an 19% increase, building on advances exceeding 20% in both preceding years.
Furthermore, the market might still achieve double-digit growth from that point. At the beginning of the week, Yardeni reiterated his projection for the index to surge to 7,700 by 2026, suggesting a 10% rise compared to his 2025 outlook.
“We expect that 2026 will be just another year of the Roaring 2020s, which remains our base-case scenario,” he wrote. “Our Roaring 2020s scenario has had a good six-year run since we first predicted it in 2020.”
GDP growth, consumption and corporate profits have been chugging along, and Yardeni said the decade should avoid an economy-wide recession, while “rolling recessions” may hit different industries at different times.
Deutsche Bank is feeling even more optimistic, forecasting that the S&P 500 will reach 8,000 by the end of next year, which would be a 17% increase from its closing price on Friday.
“We see equities continuing to benefit from the cross-asset inflows boom,” analysts wrote in a note. “With earnings continuing to rise and companies indicating they are sticking with their capital allocation plans we expect robust buybacks to continue.”
In other news, JPMorgan anticipates the S&P 500 will finish 2026 at 7,500, though they also suggested it might reach 8,000 should the Federal Reserve continue to lower interest rates.
The aforementioned analysts pointed to earnings expansion exceeding expectations, a surge in capital expenditures for AI, increased distributions to shareholders, and a loosening of fiscal policy through tax reductions within President Donald Trump’s proposed One Big Beautiful Bill Act.
Should inflation subside more than expected, this would pave the way for Additional Fed rate reductions beyond the two further cuts that JPMorgan anticipates.
“More so, the earnings benefit tied to deregulation and broadening AI-related productivity gains remain underappreciated,” the bank said.