Wall Street forecasts the S&P 500 to reach 7,580 by the end of 2026, expecting a 14% rise in EPS. The anticipated growth is supported by US President Trump’s push for lower interest rates, tariff stimulus checks, and large tax refunds.
A BlackRock survey suggests that 59% of respondents believe returns for risk assets will continue in 2026. Sources like FXStreet report predictions ranging from 7,200 to 8,100, with an average estimate of 7,580, up 11% from 6,820.
Effects Of Trump’s Policies
In 2025, Trump’s policies caused fluctuations in the S&P 500, initially dropping 17% YTD due to tariffs. However, the index rebounded with seven consecutive months of gains, leading to a 15% YTD return.
The market is optimistic about 2026, with Goldman Sachs predicting US GDP growth between 2% and 2.25%. The Federal Reserve cut interest rates by 75 bps in 2025 and may reduce them further by 50 bps in 2026.
Trump plans additional stimulus and tax cuts for 2026, with potential measures to distribute tariff stimulus checks. Companies will benefit from the 100% bonus depreciation policy, boosting AI capex spending.
The S&P 500 is projected to benefit from technical factors and earnings growth. Adobe, UnitedHealth, Newmont, Marvell, and Netflix are strong stock picks for the coming year.
Positioning For Upside
With the S&P 500 expected to climb 11% to 7,580 next year, we should be positioning for more upside in the coming weeks. Historically, the final five trading days of December and the first two of January deliver positive returns, a period known as the Santa Claus Rally. Since 1950, this window has produced an average S&P 500 gain of 1.3%, making it an ideal time to initiate bullish trades.
A straightforward strategy is to buy call options on the SPX or SPY with expirations in March or June 2026. Given the bullish consensus, strike prices around the 7,000 to 7,200 level would allow for significant participation in the anticipated rally. Alternatively, selling out-of-the-money put spreads can generate income while reflecting our view that strong support exists around the 6,550 level.
The Federal Reserve’s dovish stance provides a major tailwind for our strategy. Following the three interest rate cuts in 2025, last week’s Fed meeting minutes confirmed a willingness to cut further in early 2026. We’ve seen in the past that when the Fed eases policy while the market is near its highs, stocks tend to perform very well over the following year.
Political catalysts also appear to be lining up favorably for early 2026. Recent chatter from Capitol Hill suggests a bill authorizing tariff stimulus checks could be ready for a vote by late January, which would boost consumer spending. This, along with larger tax refunds from the new tax bill, creates a powerful incentive to be long equities through the first quarter.
While we remain bullish, we remember the sharp volatility from early 2025 after the tariff turmoil. Last week’s jobless claims data came in at 245,000, which helped calm fears of a rapid economic slowdown, but risks remain. Using defined-risk trades like call spreads is a prudent way to capture upside while protecting against any sudden downturns.
We can also look at specific sectors that are poised to benefit from the current environment. Call options on gold miners like Newmont (NEM) make sense, as central bank buying has pushed gold prices to record highs, with many analysts seeing a path to $5,000 per ounce. Similarly, the ongoing AI buildout, supported by 100% bonus depreciation, makes call options on semiconductor names like Marvell Technology (MRVL) attractive.
