Wall Street expects the S&P 500 to reach 7,580 by the end of 2026. Analysts predict a 14% increase in earnings per share (EPS). Forecasts for the S&P 500 in 2026 range from Wells Fargo’s estimate of 7,200 to Oppenheimer’s 8,100. On average, these expectations are about 11% higher than the current level of 6,820. President Trump’s push for lower interest rates is showing positive results, with the Federal Reserve lowering rates multiple times this year. This trend is expected to continue into 2026, along with retroactive tax cuts and tariff stimulus checks, which should help boost asset prices.

Trends in the Stock Market

In the first year of Trump’s second term, there was notable volatility. The S&P 500 saw an initial drop but then enjoyed seven consecutive months of gains, largely driven by investments in AI and various other factors despite economic disruptions. For 2026, analysts predict that AI capital expenditures will exceed $2 trillion, positively impacting U.S. companies. Decreasing interest rates are likely to enhance the value of future cash flows, raising stock multiples. Technically, the S&P 500 could reach as high as 8,200, with solid medium-term support at 6,550. Investors are expected to shift towards value stocks due to big tech’s performance in 2025. Risks to watch include a sudden drop in the AI trend or a significant increase in unemployment. With a positive outlook for 2026, it is wise to prepare for growth in the S&P 500 in the upcoming weeks. The index has stabilized around 6,800 throughout December, creating a strong base above the 6,550 support level. This is a good opportunity to buy call options on the SPX or SPY that expire in February or March to benefit from the anticipated early-year rally.

Volatility and Market Positioning

The CBOE Volatility Index (VIX) has been useful, recently dropping below 15 for the first time since the government shutdown scare in October 2025, making options cheaper to buy. A bull call spread could be a smart strategy, allowing us to take advantage of a rise to 7,200 while limiting risk, given that forward valuations of 28 times earnings are historically high. This also provides protection if the market remains steady through the holidays. Fiscal policy is a strong support for the market. With large tax refunds expected in February and March 2026, and discussions about a “tariff stimulus check” gaining momentum in Congress, we might see a flood of retail liquidity entering the market. Data from the stimulus checks in 2020 and 2021 indicated a clear link to increased trading volumes and inflows into popular tech stocks and ETFs. Monitoring the labor market is crucial, especially with the December jobs report expected in early January. The unemployment rate rose to 4.6% in November, and although this hasn’t signaled a recession yet, a significant increase could alarm investors. Buying some cheap, out-of-the-money S&P 500 puts expiring in late January can be a good hedge against a weak report. The Federal Reserve’s more lenient stance is another important factor, as the 75 basis points cut in 2025 provided major support for equities. The Fed’s plan to purchase $40 billion in Treasuries each month should also help keep long-term interest rates low, boosting stock valuations. Futures markets now indicate over a 70% chance of another rate cut by the March 2026 meeting. With 100% bonus depreciation for capital expenditures, we can expect the ongoing AI spending boom to continue driving growth in the tech sector. Recent reports from the Semiconductor Industry Association showed an increase in orders for data center chips through November 2025, indicating strength in semiconductor and cloud computing stocks. Therefore, call options on the SMH or XLK could be attractive options for the first quarter. Create your live VT Markets account and start trading now.

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