Last year at this time, this blog was expecting a similar modest return, and that forecast was exceeded nicely by this year’s results.
Here’s what this blog has for SP 500 total returns for the last 3 years as well as balanced account returns for the same three-year period:
- 2025: SP 500 total YTD return +23.60% (ann’lzd)
- 2024: SP 500 total YTD return +25.61% (annual)
- 2023: SP 500 total TYD return +26.29% (annual)
60% / 40% balanced account returns:
- 2025: +15.90% (ann’lzd)
- 2024: +16.44% (annual)
- 2023: +17.66% (annual)
Forecasting is like that famous saying that notes, “Opinions are like a–h—s; everybody has one” which was relayed to me in the depths of the bear market in 2008.
There are a lot of good reasons to be both bullish and bearish:
- SP 500 EPS growth should average 12% – 14% in 2026, which is still double-digit growth;
- The FOMC will likely reduce the fed funds rate at least twice more in 2026, given the expected change in the Fed Chairman position;
- The AI spend is expected to continue, boosting the tech, communication services and consumer discretionary sectors;
- The financial sector, which is the SP 500’s 2nd largest sector behind technology at 13.5% market cap weight, is trading very well. Financials have long been thought of as market general’s as well tech mega-caps;
- Tax refunds in 2026 are expected to keep the US consumer flush;
- Productivity gains from AI will eventually seep into the US economy, gradually at first and then likely quickly, which should help assuage inflation worries.
- Bearish reasons include a secular bull market that has gone on now for 16 years and 9 months. That’s a bull market that is getting long in the tooth.
- It’s also been a few years since the SP 500 has had a year of “PE contraction”, which means SP 500 growth exceeds the benchmark’s return for that calendar year. 2025 will be the 3rd year in a row of “PE expansion” for the SP 500.
- The US economy is showing nascent signs of slowing job growth, but the other data is reflective of an economy still growing at +2%, even though GDP data shows growth at a much stronger annual pace than that.
Summary / conclusion: One point of view or perspective that I’ve gradually come to accept is that it’s highly unlikely that this current generation of investors would see a repeat of 2000 to 2009’s market returns, which was the worst decade for the SP 500 since the 1930’s. Investors saw not one but two (!) 50% bear markets in the SP 500, and it started with the stock market in 2001 and 2002, and then spreads spread into housing in 2008. The two savings vehicles that saw the greatest “wealth creation” from 1980 to 2000 outside of small business creation, (i.e. stocks and single-family housing) saw substantial wealth destruction in one decade.
If an investor had bought the SP 500 and the Nasdaq at any point in March, 2000, a new-all-time-high for the SP 500 was not seen until 13 years later or early May, 2013, while the Nasdaq 100 didn’t a make new, permanent, all-time-high until August, 2016. (By new, permanent all-time-high, what’s meant is that in 2015, the Nasdaq 100 traded above it’s March, 2000, high and then fell back below for a period of 9 – 12 months, and then in August ’16, the benchmark traded above and remained above the March, 2000, high.)
That’s a long time for an average investor to sit with portfolio losses.
Years of low or single-digit, negative returns for the SP 500 are always probable.
Here’s some recent articles written on expected SP 500 returns, i.e., here, here, here, here.
None of this is advice or a recommendation, but only an opinion. Past performance is no guarantee of future results. There has been no SP 500 earnings update for the last two weeks as LSEG shut off the updating for the past two weeks. The expectation is that the LSEG reports will resume on January 2nd, 2026.
Hopefully readers will have a prosperous and healthy 2026.
Thanks for reading.