The U.S. stock market is poised to conclude a three-year streak of double-digit percentage gains. To extend this rally into a fourth consecutive year in 2026, it must navigate a challenging landscape—requiring robust corporate earnings growth, a dovish Federal Reserve, and sustained investment in artificial intelligence (AI).

Since October 2022, the bull market has been fueled by AI optimism, declining interest rates, and economic resilience, despite intermittent recession fears. This year, stocks experienced significant volatility, with sharp declines following the Trump administration's unexpected tariff hikes in April. The S&P 500 has surged over 17% in 2025 (with just a few trading days remaining), following gains of 23% in 2024 and 24% in 2023.

Sam Stovall, Chief Investment Strategist at CFRA, noted that achieving another year of double-digit returns would require "everything to go right." He cautioned, "Multiple headwinds suggest we might see a surprisingly good year, but not another blockbuster." Stovall projects the S&P 500 to reach 7,400 by end-2026, a 7% rise from current levels.

Many strategists anticipate strong 2026 performance, with some S&P 500 targets implying over 10% gains—including Deutsche Bank's 8,000-point forecast, which would mark a 16% increase.

**Earnings and AI: Can They Deliver?** Bullish investors highlight optimistic U.S. corporate earnings prospects. Tajinder Dhillon, Head of Earnings Research at LSEG, expects S&P 500 earnings to grow over 15% in 2026, building on 2025's projected 13% rise. Analysts foresee broader-based profit growth beyond just mega-cap tech firms, supported by fiscal stimulus and accommodative monetary policy.

Dhillon noted that the "Magnificent Seven"—including Nvidia (NVDA.US), Apple (AAPL.US), and Amazon (AMZN.US)—posted 37% earnings growth in 2024 versus just 7% for the rest of the index. By 2026, this gap is expected to narrow sharply, with the top seven firms projected to grow profits by 23% and the remaining S&P 500 companies by 13%.

"If the other 493 stocks can improve earnings growth—which we’re already seeing hints of—it would certainly help deliver double-digit returns next year," said Kristina Hooper, Chief Market Strategist at Invesco.

With valuations near historic highs, profit growth is seen as critical to sustaining market momentum. AI-driven optimism—reflected in massive infrastructure spending and commercialization hopes—has been a key valuation driver. However, recent doubts about AI investment returns have pressured tech stocks, a debate likely to persist in 2026.

"If companies scale back projected capex or lose faith in AI returns... this year’s performance could flatline or even dip slightly," warned Jeff Buchbinder, Chief Equity Strategist at LPL Financial.

**Dovish Fed and Mixed Historical Signals** Investors say another key factor is an economic soft landing—cooling inflation enough to justify further rate cuts without triggering a recession. Federal funds futures imply at least two more 25-basis-point cuts in 2026, following 175 bps of reductions in 2024–2025.

"What I’m most hopeful for is the Fed staying accommodative," said Yu Ma, Chief Investment Strategist at PNC Financial Services.

Markets are also eyeing President Trump’s expected 2026 decision on the next Fed chair, which could signal a dovish tilt but risks testing central bank independence.

Historical data paints a mixed picture. On one hand, LPL Research notes that the fourth year of bull markets since 1950 averaged 12.8% gains, with six out of seven instances positive. On the other, midterm election years—marked by congressional uncertainty—have seen weaker returns. CFRA’s Stovall points out that the S&P 500 averages just 3.8% gains in midterm years versus 11% in other years of a presidential term.