The U.S. stock market scaled new heights in 2025, as investors largely tuned out concerns about the Trump administration’s sharply higher tariffs and shrugged off fears of a financial market bubble among artificial intelligence companies.
The S&P 500 stock index is up roughly 15% this year through Dec. 17— a strong performance, although lower than the heady 23% jump posted by the broad-based index in 2024. The S&P 500 has climbed an average of 13% per year over the last decade, according to Mark Luschini, chief investment strategist at wealth management firm Janney Montgomery Scott.
The Nasdaq Composite, which includes tech heavy-hitters such as Alphabet, Microsoft and Nvidia, has climbed more than 18% this year, while the blue-chip Dow Jones Industrial Average is up more than 13%.
The key question: Will such investor exuberance spill over into 2026, especially as concerns about an AI bubble percolate?
“I think conditions remain relatively fertile for stock prices to do OK overall,” Luschini told CBS News. “The big risk is that the whole AI narrative starts to lose a little of its viscosity.”
Other forecasters are also expecting a strong stock market performance in 2026. David Lefkowitz, head of U.S. equities at UBS Global Wealth Management, expects the S&P 500, which closed Monday trading at 6,816 points, to reach 7,300 points by June of next year and 7,700 by the end of 2026. That would represent a roughly 15% gain over the next year.
J.P. Morgan said in a November research report that it expects the S&P 500 to rise 13% to 15% next year, boosted by robust corporate earnings growth, and to carry that strength into 2027.
What will drive stocks in 2026?
Several catalysts are expected to drive the stock market in 2026. Among them is another year of strong corporate earnings, particularly in tech, analysts say. BofA Global Research expects overall earnings to grow in the mid-double digits next year.
“Multiple expansion and earnings growth both pushed the S&P 500 up 15% this year,” the securities firm said in a market forecast. “In 2026, earnings will do the lift.”
The AI boom should also help fuel the stock market, with a wave of capital investments likely to drive up tech stocks, analysts note. AI capital expenditures from major tech companies including Alphabet, Amazon, Meta, Microsoft and Oracle are expected to approach $520 billion in 2026, Jeff Buchbinder, chief equity strategist for LPL Financial, said in a research note.
Another area expected to benefit from the AI boom is the industrials sector, which is supplying the equipment necessary for data centers.
Growth, however, won’t be limited to tech or AI-adjacent sectors. Indeed, Bret Kenwell, a U.S. investment and options analyst at eToro, said a broadening of the bull market could be in the cards, with all 11 sectors in the S&P 500 expected to rise next year.
“If it happens, it’ll have been five years since we’ve seen it,” he said.
Adam Crisafulli, head of Vital Knowledge, and Luschini both expect a good year for financial services stocks. Banks have traded very well this year amid an easier regulatory backdrop and a jump in mergers and acquisitions.
Another tailwind for the stock market could be softer monetary policy and a more dovish Federal Reserve, Kenwell said, with President Trump soon expected to nominate a new central bank chief before Jerome Powell’s term ends in May.
“It’s kind of a when, not if, rate-cut situation with the Fed,” Kenwell said.
Still, analysts and major banks expect a slowdown in the pace of interest rate cuts. In a November report, J.P. Morgan forecasts one more interest rate cut in January before an extended pause and said that if the central bank further eases monetary policy, the S&P 500 could surpass 8,000 points in 2026.
Is my money safe?
The biggest shadow looming over the stock market next year is what will happen with artificial intelligence.
AI and tech stocks have been the propelling force behind equity gains this year, with earnings growth from the “Magnificent Seven” far outpacing other companies in the S&P 500. That strength has been accompanied by a boom in capital expenditures, as investors rush to invest in data center construction and other technology infrastructure to meet rising demand for AI.
“Robust demand for cloud services and data center capacity shows no signs of slowing,” Janus Henderson portfolio manager Jeremiah Buckley said in his company’s 2026 outlook on capital investment.
Amid all the hype, some investors are concerned about whether AI’s ascendance could start to falter next year, leading to a market correction or the bursting of what some consider to be an AI bubble.
In its 2026 outlook, Vanguard said it expects U.S. technology stocks to maintain momentum given the rate of investment and anticipated earnings growth. At the same time, the investment management company noted that “risks are growing” amid all of the AI optimism.
Crisafulli said tech gains have historically moved in unison, but that started to splinter in November, when Alphabet shares surged 14% following the release of Google Gemini 3, while the rest of the Nasdaq slumped. The continued fracturing of the AI narrative is one of the headwinds he expects investors will have to face in 2026.
“It’s not so much the bubbles bursting,” he said. “It’s more just people looking at it in a more nuanced way.”
Still, as usual investors should expect some turbulence. Minor pullbacks or flat trading periods are possible, especially after several months of consecutive growth in the S&P 500, according to Kenwell.
“When we look at 2025, it was a good reminder that volatility is in play, and that’s something that certainly can be back in the cards in 2026,” he said.