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Why Wall Street May Remain Bullish in 2026? ETFs in Focus
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Key Takeaways
Wall Street provides a strong 2026 outlook as multiple strategists set higher S&P 500 year-end targets.
AI boom is seen as intact as earnings hold up, and some analysts opine the tech bull market has years to run.
ETF ideas include XLV for healthcare, RSP for equal-weight S&P 500 exposure and selective AI plays like XSW.
Wall Street’s optimism for the stock market is building up as 2026 approaches, despite the ongoing overvaluation concerns in artificial intelligence (AI) stocks. Last week’s Oracle and Broadcom earnings contributed to those fears. Oracle's high capex led to cost and payoff concerns in AI infrastructure, while concerns related to margin pressure (per CNBC) were present in Broadcom earnings.
Still, there are some factors in play that are becoming supportive for equities. Let’s delve a little deeper.
Upbeat 2026 Forecast for S&P 500
The S&P 500 projections for 2026 remain bullish. Oppenheimer set the S&P 500 2026 year-end target to the Wall Street high at 8100, per Reuters, as quoted on Tradingview. If the index reaches the 8,000-mark by 2026, it would represent about a 17% gain.
Veteran strategist Ed Yardeni sees the S&P 500 climbing to 7,700 (as mentioned in Yahoo Finance). He cited factors such as tax benefits from the Big Beautiful Bill and the AI boom to drive the S&P 500. UBS projects a December 2026 target of 7,700, per the same Yahoo Finance article.
Wedbush analyst Dan Ives is quite bullish, arguing the tech market isn’t in a bubble – instead, he sees the industry in year three of an 8-10 year AI buildout, as quoted on CNBC. He expects the tech bull market to continue for at least two more years.
Uptick in GDP Growth Projections
The Federal Reserve expects real GDP to be 2.3% in 2026 (up from 1.8% predicted in September), 2% in 2027 (up from 1.9% projected in September) and 1.9% in 2028 (up from the earlier estimate of 1.8%). Unemployment rate projections are maintained at 4.4% for 2026, while the rate is projected to decline by one percentage point to 4.2% in 2027. The PCE inflation is projected to be 2.5% (down from the earlier estimate of 2.6%).
Will We See More Fed Rate Cuts in 2026 Than Expected Now?
Fed Chair Powell’s term is ending in May. President Trump favors a low-rate environment. Trump signaled that his choice for the next Fed chair will depend on whether they move quickly to cut interest rates, per Bloomberg, as quoted on Yahoo Finance.
As of now, after three rate cuts in 2025 totaling three-quarters of a percentage point, the Fed’s outlook for 2026 looks more controlled. Policymakers continue to project just one rate cut next year, consistent with their September forecast.
Fed Funds rate is projected to be 3.4%, the same as projected in September. Fed Funds rates are expected to be 3.1% for both 2027 and 2028. However, if the labor market improves, inflation declines, and we receive a Fed chief who is more dovish in policy approach, we may see more than one cut in 2026.
Earnings Growth to Remain Resilient in 2026?
Total earnings, or aggregate net income, for the S&P 500 in 2025 are expected to rise 11%, with 2026 earnings projected to increase 11.8%, per the Earnings Trends issued on Nov. 19, 2025. Revenue growth for full-year 2025 and 2026 is forecast at 5.2% and 6.7%, respectively.
Margins are expected to be 0.70% in 2025 and 0.63% in 2026. Goldman Sachs expects accelerating economic growth and a fading tariff drag on margins to support earnings growth in 2026, as quoted on Yahoo Finance.
Victoria Fernandez, chief market strategist at Crossmark Global Investments, advises investors to avoid heavy concentration in any single sector, as quoted on Yahoo Finance. Hence, this equal-weight approach to the S&P 500 index may do wonders.
State Street Health Care Select Sector SPDR ETF (XLV - Free Report)
Fernandez also highlighted transportation, homebuilders, healthcare and energy as areas where opportunities may be emerging. In any case, the healthcare sector is in high-momentum currently. The strength in the biotech sector is back with a bang. Cheaper valuations, Fed rate cuts, FDA approvals and strong deal activity have aided biotech gains in recent times.
State Street SPDR S&P Software & Services ETF (XSW - Free Report)
Fernandez also remains hopeful on the AI theme. She just advises investors to become more selective, focusing on “second-level” AI beneficiaries rather than just the infrastructure builders. In this regard, investors can consider software stcoks and ETFs (read: AI Software ETFs for Long-Term Opportunity).
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Why Wall Street May Remain Bullish in 2026? ETFs in Focus
Key Takeaways
Wall Street’s optimism for the stock market is building up as 2026 approaches, despite the ongoing overvaluation concerns in artificial intelligence (AI) stocks. Last week’s Oracle and Broadcom earnings contributed to those fears. Oracle's high capex led to cost and payoff concerns in AI infrastructure, while concerns related to margin pressure (per CNBC) were present in Broadcom earnings.
Still, there are some factors in play that are becoming supportive for equities. Let’s delve a little deeper.
Upbeat 2026 Forecast for S&P 500
The S&P 500 projections for 2026 remain bullish. Oppenheimer set the S&P 500 2026 year-end target to the Wall Street high at 8100, per Reuters, as quoted on Tradingview. If the index reaches the 8,000-mark by 2026, it would represent about a 17% gain.
Deutsche Bank argues that the ongoing investment flows, strong buybacks and persistent earnings strength have set the stage for “mid-teens returns” next year, as mentioned in a Yahoo Finance article (read: S&P 500 to Hit At Least 7,500-Mark in 2026? ETFs in Focus).
Veteran strategist Ed Yardeni sees the S&P 500 climbing to 7,700 (as mentioned in Yahoo Finance). He cited factors such as tax benefits from the Big Beautiful Bill and the AI boom to drive the S&P 500. UBS projects a December 2026 target of 7,700, per the same Yahoo Finance article.
Why the AI Bubble Is Unlikely to Burst Now
Despite economic uncertainty, the AI boom remains intact. Earnings growth is holding up, thanks to a massive AI investment cycle that still drives Big Tech’s capex (read: AI Valuations Rich, But Strong Earnings a Plus: ETFs in Focus).
Wedbush analyst Dan Ives is quite bullish, arguing the tech market isn’t in a bubble – instead, he sees the industry in year three of an 8-10 year AI buildout, as quoted on CNBC. He expects the tech bull market to continue for at least two more years.
Uptick in GDP Growth Projections
The Federal Reserve expects real GDP to be 2.3% in 2026 (up from 1.8% predicted in September), 2% in 2027 (up from 1.9% projected in September) and 1.9% in 2028 (up from the earlier estimate of 1.8%). Unemployment rate projections are maintained at 4.4% for 2026, while the rate is projected to decline by one percentage point to 4.2% in 2027. The PCE inflation is projected to be 2.5% (down from the earlier estimate of 2.6%).
Will We See More Fed Rate Cuts in 2026 Than Expected Now?
Fed Chair Powell’s term is ending in May. President Trump favors a low-rate environment. Trump signaled that his choice for the next Fed chair will depend on whether they move quickly to cut interest rates, per Bloomberg, as quoted on Yahoo Finance.
As of now, after three rate cuts in 2025 totaling three-quarters of a percentage point, the Fed’s outlook for 2026 looks more controlled. Policymakers continue to project just one rate cut next year, consistent with their September forecast.
Fed Funds rate is projected to be 3.4%, the same as projected in September. Fed Funds rates are expected to be 3.1% for both 2027 and 2028. However, if the labor market improves, inflation declines, and we receive a Fed chief who is more dovish in policy approach, we may see more than one cut in 2026.
Earnings Growth to Remain Resilient in 2026?
Total earnings, or aggregate net income, for the S&P 500 in 2025 are expected to rise 11%, with 2026 earnings projected to increase 11.8%, per the Earnings Trends issued on Nov. 19, 2025. Revenue growth for full-year 2025 and 2026 is forecast at 5.2% and 6.7%, respectively.
Margins are expected to be 0.70% in 2025 and 0.63% in 2026. Goldman Sachs expects accelerating economic growth and a fading tariff drag on margins to support earnings growth in 2026, as quoted on Yahoo Finance.
ETFs to Play
Invesco S&P 500 Equal Weight ETF (RSP - Free Report)
Victoria Fernandez, chief market strategist at Crossmark Global Investments, advises investors to avoid heavy concentration in any single sector, as quoted on Yahoo Finance. Hence, this equal-weight approach to the S&P 500 index may do wonders.
State Street Health Care Select Sector SPDR ETF (XLV - Free Report)
Fernandez also highlighted transportation, homebuilders, healthcare and energy as areas where opportunities may be emerging. In any case, the healthcare sector is in high-momentum currently. The strength in the biotech sector is back with a bang. Cheaper valuations, Fed rate cuts, FDA approvals and strong deal activity have aided biotech gains in recent times.
State Street SPDR S&P Software & Services ETF (XSW - Free Report)
Fernandez also remains hopeful on the AI theme. She just advises investors to become more selective, focusing on “second-level” AI beneficiaries rather than just the infrastructure builders. In this regard, investors can consider software stcoks and ETFs (read: AI Software ETFs for Long-Term Opportunity).