As we step into 2026, the optimism surrounding the stock market continues to grow, driven largely by falling interest rates and robust corporate earnings. After three consecutive years of impressive returns, Wall Street’s major indices—the S&P 500, Dow Jones Industrial Average, and Nasdaq—have kicked off the year with high valuations and strong performances, setting the stage for another potential year of gains.
In the previous year, the S&P 500 rose by 16%, the Dow by 13%, and the Nasdaq by an impressive 20%. With this momentum, many investors are left pondering whether this rally can continue into 2026. To shed light on this, Remy Blaire spoke with Sonu Varghese, Vice President and Global Macro Strategist from Carson Group, who shared valuable insights on the state of the market as we transition into the new year.
According to Varghese, there is no expectation of a recession this year, which generally bodes well for equities. Our strategist believes that we can anticipate returns exceeding 10% for the S&P 500 in 2026, with forecasts between 12% and 15%. This outlook comes amidst a backdrop of solid economic data, including a steady GDP growth projected to hover around 2.5% in 2026—an encouraging sign that the economy is navigating safely through turbulent waters.
The labor market, however, presents a mixed picture. While the unemployment rate has seen an uptick to about 4.6%, the labor force remains resilient. Varghese emphasized that the economy has experienced a balanced hiring and firing landscape, an aspect crucial for maintaining economic stability. As per the latest expectations for the upcoming jobs report, any easing in unemployment could serve as a favorable factor, potentially increasing the likelihood of cuts by the Federal Reserve.
Fiscal policy is another key player in this economic environment. With deficits above 6% of GDP, the anticipated tax cuts introduced in the middle of last year are expected to provide a significant boost to profitability as they roll out over the next few months. Many households may receive larger-than-anticipated refunds due to retroactive tax decreases, which could inject much-needed capital into the economy and further stimulate spending.
The global economy is another consideration when evaluating future market performances. Varghese noted a recent resurgence in global economic activity, promoting optimism particularly for US equities, given that over 40% of U.S. corporate revenues stem from international sources. Such interconnectedness underscores the significance of international market conditions, which serve as a tailwind not only for local markets but also for the broader global economic landscape.
Diversification of investments will remain essential as we navigate through 2026. Varghese discussed the ideal portfolio composition in this climate, advocating for an allocation that favors equities while maintaining exposure to both U.S. and international markets. Specifically, the strategy includes 70% in U.S. equities and 30% in international equities, with a slight overweight in developed markets. This balanced approach, complemented by investments in bonds, cash, and managed assets such as gold, aims to withstand any inflationary pressures that may arise.
In conclusion, as we embark on 2026, the stock market holds promise amid a favorable economic backdrop. With solid momentum on our side, businesses and individuals alike can remain optimistic as investment strategies evolve to adapt to shifting economic realities. This balance between cautious optimism and strategic diversification will undoubtedly play a crucial role in navigating the financial landscape in the year ahead.