Last week, the Carson Investment Research Team released our Market Outlook 2026: Riding the Wave. The investment team’s guidance has often been contrarian over the last few years. When many economists and pundits were calling for a recession in 2022 and 2023, we continued to forecast continued economic expansion, not out of some deep-seated optimism, but simply because of what we saw in the numbers. Similarly, when markets were at their most pessimistic post-Liberation Day in 2025, we saw reasons for optimism even if uncertainty was elevated.
As we look ahead to 2026, we just don’t see the forces in play that typically lead to a recession. To the contrary, we see the economy likely riding a wave of lower interest rates, strong fiscal stimulus, and continued investment in AI infrastructure. Those forces inform our base case forecast of a 12% to 15% total return for the S&P 500 in 2026 and a 3% to 5% return for the Bloomberg US Aggregate Bond Index.
2025 Was a Good Year for Investors Despite the Uncertainty
As we look back at 2025, it’s fair to say the wall of worry was high. We started last year with pundits warning that the “delayed” recession may finally be arriving due to the most aggressive tariff regime in 100 years. We saw massive volatility around “Liberation Day” in April, when the S&P 500 nearly fell into a bear market. We also heard constant chatter about an “AI bubble” bursting and political turmoil scrambling expectations.
And yet? The S&P 500 returned 17.9% in 2025. International stocks did even better, surging more than 30%. Even bonds finally had their moment, with the Bloomberg Aggregate Bond Index delivering a solid 7.3% return, the best year since 2020.
Once again, the crowd panicked at the worst time, but your Carson Investment Research team stuck to the fundamentals and not the emotional headlines. Although it was lonely in April, the data suggested better times were coming, because we followed the facts, not feelings.
Now, as we start 2026, the question changes. We aren’t just trying to catch the wave anymore. We are on it. We believe the challenge now is riding it out and not bailing too soon. Markets are still uncertain, and we think the principles of diversification are as important as ever. We can also be nearly certain that at some point there will be some scary headlines in 2026. But we think conditions are encouraging when it comes to what markets care about, so tune out the noise, tune out the politics, and, as investors, remain focused on profits, margins, and the resiliency of corporate America and the global economy as we move into 2026.
A Foundation of Earnings
It’s easy to look at three years of a bull market and assume we are “due” for a pause or even a crash, but right now, the energy beneath this bull market is stronger than ever, thanks to robust corporate earnings.
S&P 500 earnings are expected to grow by approximately 14% in 2026, a number we think is quite attainable. This isn’t just hype: Profit margins are expanding and hitting cycle highs as well. When companies are making more money per dollar of sales, that is a tailwind that’s hard to bet against.
The Economy Stands Tall
What about that recession everyone has been promising since 2022?
Our proprietary Carson Leading Economic Index (LEI) never pointed to a recession over the last three years, even when other popular indicators were flashing red.
As we enter 2026, the signal remains clear: The U.S. economy is growing near trend with no sign of a major slowdown. In fact, we are seeing a “global fiscal reflation” story, where growth in Europe and emerging markets is picking up, providing a favorable tailwind for US multinationals.
Three Things to Watch in 2026
While we remain overweight equities, “riding the wave” implies that balance and skill are required. Here is what we are watching:
- The AI Buildout: We believe the AI boom is built on substance, not just speculation. Tech giants are expected to spend a record $515 billion on capital expenditures in 2026 to build out this infrastructure. Unlike in the dot-com era, these companies are massive cash flow generators and creating huge profits. We believe we are still in the mid-innings of this cycle.
- The Global Handoff: For years, the US was the only game in town. In 2025, we saw a global bull market, with most of the rest of the world outperforming the US. We think remaining overweight equities but keeping a diversified global portfolio is more important now than it has been in a decade.
- Volatility Is the Toll We Pay to Invest: 2026 is a midterm election year. Historically, these years can be choppy, often seeing peak-to-trough corrections of more than 17%—the worst year in the four-year presidential cycle. But remember, volatility is the toll we pay to invest. A 10% to 15% drop sometime this year doesn’t mean the bull market is over; it more likely means an opportunity is forming for longer-term investors.
This Bull Is Young
It’s easy to think that a three-year-old bull market is getting tired. But history suggests otherwise, as the average bull market since World War II has lasted more than five years. We aren’t saying this run has another two years guaranteed, but we are saying you shouldn’t fear old age just yet. The data shows that the fourth year of a bull market tends to be quite strong.
The Bottom Line
We believe there is an opportunity for a “virtuous cycle” where AI investment, fiscal policy, easing monetary policy, and global growth sustain this expansion. But waves can be unpredictable. The easy gains of “just showing up” might be behind us; 2026 will be about sector selection, global diversification, and holding your nerve when the water gets rough.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly traded companies from most sectors in the global economy, the major exception being financial services.
The views stated in this letter are not necessarily the opinion of Cetera Wealth Services LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.
A diversified portfolio does not assure a profit or protect against loss in a declining market.
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