January 2026 Review & Commentary: Will we see a fourpeat in 2026?

Peter W. Tuz, CFA, CFP®, President & Portfolio Manager

Although starting 2026 with broad-based strength (at least by January 5), U.S. equity markets ended 2025 with a whimper, but once again fared extremely well over the course of the year. The S&P 500 Index (“S&P 500”) ended up 17.88% while the growthier Russell 1000® Growth Index rose 18.56% and the less growthy Russell 1000® Value Index rose a still very respectable 15.91%. What is amazing is that from an inter-day low of 4837.05 on April 7, the index rose 41.5% by December 31st. The year just ended marked the third consecutive year of strong returns. The cumulative numbers are pretty amazing:

Can we see something similar in 2026?

Maybe. Maybe even likely. Since 1942, there have been 11 periods of three years or more positive returns for the S&P 500. Of the 11 periods, there were three-year positive returns four times and, surprisingly, seven periods of positive returns lasting more than three years. They were as follows:

Period            Total Gain

• 1942-1945.     141.0%
• 1947-1952      151.5%
• 1958-1961      104.6%
• 1982-1989      294.2%
• 1991-1999      442.2%
• 2003-2007      81.7%
• 2009-2017      253.7%
• 2023-2025.     85.7%

Put simply, once the S&P 500 has risen three consecutive years, it is more likely to rise in the fourth than it is to fall. Go figure.

As always, there are a multitude of positive and negative factors as we exit 2025 and enter 2026. The positive factors include:

• Expected strong growth in earnings, with S&P 500 earnings expected to rise 15.1%
• Inflation that appears to be coming down
• The likelihood that Federal Reserve bankers will lower interest rates this year
• Benefits from the One Big Beautiful Bill, resulting in higher than expected economic growth
• Most technical indicators regarding stock market performance remain positive.

And there are some negatives as well. They include:

• Markets are very highly valued by historic norms, with a price/earnings ratio of 22.0x on 2026 earnings
• By some measures, U.S. consumers, responsible for 2/3 of the economy, are stressed
• Record levels of government debt may make adding to it and refinancing it difficult
• The prospect of global turmoil of some sort breaking out in the coming year
• The possibility of running short on electrical power in the U.S. causing a moratorium on data center construction and equipping.
• Mid-term presidential years tend to be both more volatile and weaker than other years

There were a few key drivers of strong markets in 2025. The most obvious was the growth of all things artificial intelligence, including chip producers, but also companies that helped in the construction and equipping of data centers. Secondly, companies that helped in the equipping and construction of data centers and other products used in the artificial intelligence sphere did well. Utilities, usually a low-beta defensive sector, were the fourth best performing group in the S&P 500, rising 16.0% during the year. All of the S&P 500’s sectors posted positive returns in 2025. The best were: Communications Services, up 33.6%, Information Technology, up 24.0%, and Industrials, up 19.4%. The three worst sectors were Real Estate, up 3.2%, Consumer Staples, up 3.9% and Consumer Discretionary, up 6.0%.

Of all the economic statistics to look at going forward, two seem to us to be of special importance. As of January 2, analysts expect the S&P 500 to have earnings per share of $310 in 2026. This would mark a 15.01% gain from the expected earnings per share of $266.01 for 2025. Earnings growth of that magnitude is typically not seen unless the economy is coming out of recession, such as the 49.4% growth in the S&P 500 in 2021 versus the COVID year of 2020.

Secondly, although Federal Reserve Bankers will probably lower short-term interest rates several times in 2026, whether this results in lower long-term rates remains an important question. Over the course of 2025, 10-year U.S Treasury rates fell from 4.58% to 4.17%. Higher 10-year rates could put a damper on both the economy and equity markets. Housing, an industry depressed in 2025, generally doesn’t do well if long-term rates rise. Same with equity markets.

As you enter 2026, it’s generally wise to remember that equity markets go up a lot more than they go down, so it’s always important to think long-term. But markets do go down. We saw a short-lived 20% drop in the S&P 500 last year. It could happen again, as could a once-a-decade or so bigger drop. We always stress the importance of having enough liquid assets for big expenses over the next year or so. We are always happy to discuss asset allocation and markets at any time.