Executive Summary
Wall Street’s major banks and investment firms remain broadly constructive on U.S. equities for 2026, forecasting S&P 500 year-end targets between 7,100 and 8,000, with a consensus around 7,500–7,600 (10–12% total return from late-2025 levels). The bullish case rests on continued AI-driven capital spending, 12–15% earnings growth, $100–130 billion in tax cuts from the One Big Beautiful Act, and 50–80 basis points of additional Fed rate cuts. Bank of America is the notable outlier at 7,100, citing potential liquidity constraints and an “AI air pocket” in the second half.
Fixed-income forecasts point to a bifurcated year: Treasury yields are expected to dip toward 3.25% in the first half on rate cuts and softer growth, then rise back toward 4.0–4.25% later in the year as fiscal deficits and corporate issuance reassert upward pressure. Most strategists recommend overweighting duration early and shifting toward credit and shorter-maturity high-yield later.
Outside the U.S., a growing number of firms believe international and emerging-market equities could outperform. Cheaper valuations (MSCI EM at ~13× forward earnings vs. S&P 500 at 21×), a multi-year dollar weakening cycle, and improving growth differentials are the primary drivers.
1. U.S. Equity Forecasts for 2026 – Major Bank & Broker Targets
| Firm | S&P 500 Year-End Target | Implied Gain from ~6,800 | Key Assumptions |
|---|---|---|---|
| Deutsche Bank | 8,00 | +17% | Broad earning participation, continued AI capex |
| Morgan Stanley | 7,800 | +14% | Tax-cut boost, rolling recovery, AI efficiency gains |
| Wells Fargo | 7,800 | +14% | Two-phase rally: reflation -> AI acceleration |
| RBC Capital Markets | 7,750 | +13.5% | 10.8% EPS growth |
| Goldman Sachs | 7,600 | +11% | Steady AI momentum, resilient growth |
| J.P. Morgan | 7,500 (bull case 8,000) | +10% (+17%) | 13-15% EPS, extra Fed cuts if inflation cooperates |
| HSBC | 7,500 | +10% | AI capes offsets volatility |
| Bank of America | 7,100 | +4% | Liquidity squeeze, AI “air pocket” in H2 |
| Consensus (9-bank FT poll) | ~7,500 | +10% | Balanced growth + policy support |
Sources: Deutsche Bank, Morgan Stanley, Wells Fargo, RBC, Goldman Sachs, J.P. Morgan, HSBC, Bank of America, Financial Times (December 2025)
Favored sectors: Technology, healthcare, financials (rate-cut beneficiary) and select industrials. Dividend-growth and equal-weight strategies are frequently recommended as hedges against mega-cap concntration risk.
2. U.S. Fixed-Income Outlook for 2026
| Asset Class | First Half 2026 | Second Half 2026 | Strategist Consensus |
|---|---|---|---|
| 10-Year Treasury | 3.25-3.50% (rally on cuts) | 4.00-4.25% (fiscal pressure) | Morgan Stanley, Goldman Sachs, J.P. Morgan |
| Investment-Grade Credit Spreads | Tight -> modest widening | Wider on heavy tech issues | Neutral to underweight |
| High-Yield Credit | Strong total returns 6-8% | Resilient due to improved quality | Overweight shorter-duration HY (Goldman) |
| Bloomberg U.S. Aggregate | Positive early-year returns | Flattish as curve steepens | Tactical duration early |
Primary risks: higher-than-expected deficits, sticky core inflation above 3%, or a sharp rebound in term premiums.
International Markets Expected to Outperform the U.S. in 2026
| Region / Index | Projected Local-Currency Return | vs. S&P 500 Expectation | Primary Catalysts (Bank Views) |
|---|---|---|---|
| MSCI Emerging Markets | 8-14% | +6 to +14 pts | Dollar weakens, 9-14% earnings growth (Goldman Sachs. Cambridge Associates) |
| China (MSCI China) | 10-15% | +8 to +12 pts | Fiscal stimulus, property stabilization (Lombard Odier, Allianz GI) |
| India | 12-16% | +10 to +14 pts | 4.8% GDP Growth, digital/pharma leadership (Cambridge, Fidelity) |
| Latin America (MSCI LatAm) | 15-20% | +12 to +17 pts | 20-year low valuations, macro reforms (Cambridge Associates) |
| Europe (STOXX 600) | 6-9% | +2 to +6 pts | Shift from austerity to fiscal expansion, defense/infrastructure spending (Fidelity, Allianz) |
| Japan (TOPIX) | 7-10% | +3 to +7 pts | Corporate governance reform, AI supply-chain exposure (Goldman Sachs) |
EM local-currency debt is also highlighted for 8-10% total returns by Triodos IM and Bank of America, benefiting from Fed easing and a softer dollar.
Conclusion
The base case across most major U.S. institutions is for another positive year in American equities—driven by AI investment and policy support—with total returns likely in the high-single to mid-teens range. Fixed income should offer attractive opportunities in the first half before yields normalize higher. Meanwhile, a meaningful subset of global strategists believes 2026 could mark the beginning of a multi-year period of international and emerging-market outperformance, supported by valuation gaps, growth differentials, and a probable peak-to-trough decline in the U.S. dollar. Investors may therefore wish to maintain core U.S. exposure while selectively (favoring AI beneficiaries, healthcare, and dividend growers) while adding meaningful international diversification—particularly to emerging Asia and select European markets—to capture the potential shift in leadership.
References
- Allianz Global Investors. (2025, November 26). Outlook 2026. https://www.allianzgi.com/en/insights/outlook-and-commentary/outlook-2026
- Bank of America Global Research. (2025, December 3). 2026 equity outlook: Beware the AI air pocket. Business Insider. https://www.businessinsider.com/2026-stock-market-outlook-bofa-spx-price-ai-air-pocket-2025-12
- Cambridge Associates. (2025, December 4). Emerging markets set to outperform US stocks as dollar weakness continues. South China Morning Post. https://www.scmp.com/business/banking-finance/article/3335167/emerging-markets-set-outperform-us-stocks-dollar-weakness-continues-cambridge-says
- Deutsche Bank Research. (2025, December 3). 2026 S&P 500 target: 8,000. The Street. https://www.thestreet.com/investing/major-bank-unveils-sp-500-target-for-2026
- Financial Times. (2025, December 4). US stocks set for double-digit gains in 2026, say Wall Street banks. https://www.ft.com/content/0c133aab-0e90-44d1-9709-2c1359a86758
- Fidelity Investments. (2025, November 26). 2026 international stock outlook. https://www.fidelity.com/learning-center/trading-investing/international-stocks-outlook
- Goldman Sachs Asset Management. (2025). Investment outlook for public markets in 2026. https://am.gs.com/en-no/advisors/insights/article/investment-outlook/public-markets-2026
- J.P. Morgan Asset Management. (2025). 2026 year-ahead investment outlook. https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/2026%20Year-Ahead%20Investment%20Outlook.pdf
- Lombard Odier Investment Managers. (2025, November 30). Outlook 2026: Spectacular spending, unspectacular growth. https://www.lombardodier.com/insights/2025/december/outlook-2026.html
- Morgan Stanley Wealth Management. (2025). 2026 outlooks: Market and economic forecasts. https://www.morganstanley.com/Themes/outlooks
- RBC Wealth Management. (2025, December 4). Global insight 2026 outlook: United States. https://www.rbcwealthmanagement.com/en-us/insights/global-insight-2026-outlook-united-states
- Triodos Investment Management. (2025, November 27). Emerging markets outlook 2026: Becoming pivotal in a changing world. https://www.triodos-im.com/articles/2025/emerging-markets-outlook-2026
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