By Teresa Rivas
One of the most pessimistic strategists on the Street sees a path for the S&P 500 to climb nearly 10% next year, though he also says it could end up in negative territory.
With just a few weeks until the new year, plenty of firms have been putting out their 2026 S&P 500 forecasts. Nearly all strategists are calling for another round of high-single or double-digit gains for the index, though others see plenty of risks for the aging bull market.
Stifel's chief equity strategist Barry Bannister, who correctly predicted a good deal of the S&P 500's performance in 2023, admits his call for stocks to stagnate around 5500 at midyear due to to tariffs was too bearish. His bull case for 2026 is that the S&P 500 will end the year at 7500.
While that call is on par with price targets from firms like J.P. Morgan and HSBC, Bannister also detailed a scenario where the index loses as much as 5%.
The positive case, Bannister says, is that 13% growth in earnings per share in 2026, plus a modest decline in the S&P 500's valuation from 28 times trailing earnings to around 26 times is all that is needed to get the index to his target. That gain, of about 9%, would match the average annual increase in the S&P 500 over the past 60 years, so it wouldn't be much of a stretch.
Slowing economic growth, one result of tariffs, is incompatible with a rising market, he writes. But the tax bill passed earlier this year is likely to spur spending, boosting gross domestic product and the S&P 500 next year, he says.
Nor is Bannister too worried that megacap big tech stocks currently account for 35% of the S&P 500. The index's return on equity "has remained resilient due to Big Tech's monopolistic, high margin, asset-light models (but the capital intensity and commoditization of AI may change that)," he writes. If there is an artificial-intelligence bubble, it is nowhere near its popping point, he says.
That said, his bear case is for the S&P 500 to end 2026 at 6500, roughly 5% below current levels.
There is a chance that the Federal Reserve, which has been cutting interest rates, hasn't done enough to steer the economy clear of a recession, he says. Bannister is worried about growth in GDP slowing, saying the "2026 outlook for labor is still tenuous, and AI capex won't be enough if Personal Consumption (68% of GDP) slows."
He is also concerned that the S&P 500's equity-risk premium -- the return relative to safe Treasury debt -- today is in the 92nd percentile over the past 65 years. It's a clear signal that stocks are expensive.
Bannister also notes that speculative or overpriced assets are often the canary in the coal mine, falling before the broader market, and that some of those are struggling now. Recent losses in stocks dependent on the boom in artificial intelligence could be today's version of that.
Only time will tell which scenario plays out, but for now, holiday cheer from a market skeptic is welcome.
Write to Teresa Rivas at teresa.rivas@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 11, 2025 16:20 ET (21:20 GMT)
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