MW Fed cuts or not, the stock market is likely to move higher in 2026
By Mark Hulbert
U.S. equities historically have made investors money in two out of every three years - regardless of politics and central-bank policy
The odds of the stock market rising in a given year are remarkably indifferent to prevailing market conditions.
There's a 66% probability that the stock market will rise in 2026.
Good news - but this bullishness is not based on an analysis of current market conditions. The U.S. stock market would have a 2 in 3 chance of rising in 2026 even if stocks had lost money this year or if market valuations were less stretched than they are currently.
That's because the odds of the stock market rising in a given year are remarkably indifferent to prevailing market conditions. This is illustrated in the chart below, which plots the proportion of years since 1897 in which the Dow Jones Industrial Average DJIA rose.
Regardless of any preconditions, that proportion remains quite close to the 66% probability that emerges from focusing on all calendar years over the past 129 years. In fact, none of the differences between the various columns in the chart is significant at the 95% confidence level that statisticians typically use when assessing whether a pattern is genuine.
This result reflects the stock market's amazing efficiency. Imagine for a moment if the chances of the market rising over the next 12 months were close to 100%. In that event, investors would immediately rush into the market, pushing prices up, thereby transferring some of the subsequent year's gain to the present - and correspondingly reducing the chances the market would in fact rise over the subsequent year.
Just the reverse would take place if the chances of the market falling approached 100%. That would lead investors to dump stocks immediately, with the ultimate effect of reducing the chances that the market would fall over the subsequent year. Equilibrium is met when the odds of a rising market reach about 2 out of 3.
When valuation matters
The odds of the market rising in a given year are also unrelated to where the price-to-earnings or cyclically adjusted P/E ratios stand at the beginning of that year. This seemingly contradicts what I've stressed many times - that the stock market faces poor long-term odds whenever these ratios are well above average (like now, for example).
That seeming contradiction is resolved by realizing that the poor odds apply to the long term - 10 years, for example - and only minimally impact the next 12 months.
You only have to recall the decade of the 1990s to appreciate that this is so. The internet bubble became increasingly inflated as that decade proceeded, with the P/E and CAPE ratios well above average. It was in 1996 that then Federal Reserve Chair Alan Greenspan gave his famous speech about the market's irrational exuberance. Yet the Dow rose in each year during the late 1990s. It wasn't until 2000 that the bubble burst.
Those among you who focus on the glass being half empty will point out that there is a 1 in 3 chance the market will fall in 2026. Only you can assess whether that risk is tolerable. Just don't kid yourself that the risk will be any different this time.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com
More: This bond-market 'mystery' could be a sign of trouble ahead. Here's why all investors should pay attention.
Plus: Here's a much better way to make money investing in dividend stocks
-Mark Hulbert
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December 13, 2025 14:43 ET (19:43 GMT)
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