Will the US Stock Market Hit a New High by the End of 2026?
The US stock market hit new highs in early August, 2026. Looking ahead, will the index reach a new high at the end of year or give back the gains?
GREY RHINO
The US stock market hit new highs in early August, 2026. S&P500, the broad market barometer, has risen 20%+ since the beginning of 2006, buoyed mainly by strong corporate earnings. Looking ahead, will the index reach a new high at the end of year or give back the gains?
There are tailwinds. Some of the AI spendings have shown early signs of ROI, easing investors’ concerns. Corporate earnings remain resilient. Inflation is manageable, and the US labor market has not faltered. Investors are getting tired of the TACO trade swings, perhaps betting the Trump administration is not going to extend the unpopular war beyond the mid-term election.
But risk factors that can breed volatility remain. For one, the new Fed Chairman chose to step back on Fed rate decision transparency. Instead, he asked Wall Street to step up with their own judgment calls. This departure from the two-decade practices where the Fed usually provided an outlook for future rate environment is a sure fire to fan market volatility. The Fed rate decision will become less predictable, resulting in potential market swings in either direction.
The rate trends, reflected in treasury yields, will be further clouded by US debtors’ actions in the second half. Japan, a military/economic ally to the US, shows signs of fragility reflected in its currency value. Hit by high oil prices, Trump’s tariffs, and a weakening economy due to structural problems, Japan has experienced worrisome Yen depreciation to the point that it had to sell its US treasury bond holdings to shore up Yen’s value in the foreign exchange market. It is highly unusual for the US Treasury to join Japan to intervene in the exchange market recently, because the US realized that any sell-off of US treasury bonds would drive borrowing costs higher and add billions of dollars more on interest payments. It is hard to believe any joint interventions can stabilize Yen long-term. On the contrary, speculators may smell the blood and bet more on Yen’s slide. This pressure on treasury yields may exacerbate an already fragile treasury market, effectively making the borrowing cost higher without even the Fed actually raises it.
The inflation pressure from the economy side is still real. The prolonged war’s impact on oil prices, the tariffs on almost all major US trade partners, shortage-induced price hikes due to AI-related investment boom, and a stagnant labor market with little growth in wages are all recipes for higher prices staying longer and becoming more persistent. The Fed’s inflation target of 2% is likely a pipe dream for the near term. If the Fed raises its inflation target to 2.5% or even 3%, the stock market may read it as a Fed’s failure and correction can follow.
And there is also the US mid-term election in November. If the GOP holds back Democrat’s assail, the current administration’s policies and tactics will get a lifeline. Trump’s military gamble may continue, and his domestic policies keep their mixed impact on the economy. If the GOP loses either chambers, the check and balance will be restored to some extent. Everything is less predictable in a divided government.
So, whichever ways to look, the volatility of the stock market will only increase during the remaining 5 months of 2026. I doubt S&P 500 will continue to rise. It may consolidate for a long stretch of 3-4 months until the mid-term election results provide a clearer picture of US policies in 2027. We would be lucky to keep our 20% annual growth in 2026.
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