The Santa Claus rally typically begins at the end of December, but Wall Street is already showing signs of holiday cheer, potentially leading up to another big year for stocks in 2026.
During the Thanksgiving-shortened week, the Dow Jones Industrial Average jumped more than 3%, the S&P 500 surged nearly 4%, and the Nasdaq leapt more than 4%.
That’s after selling off sharply earlier this month on fears that the AI bubble will burst and hints that the Federal Reserve won’t cut interest rates as much as anticipated.
“Santa’s back,” market veteran Ed Yardeni declared in a note on Saturday.
But panic-selling of bitcoin, which he and others on Wall Street have said was a factor in the earlier downturn, has subsided, and stocks are poised for a year-end rally.
Yardeni backed his view that the S&P 500 will hit 7,000 by the end of the year and suggested the broad market index could even reach that milestone in the coming week.
If that happens, the S&P 500 will finish 2025 with a 19% gain, following surges of more than 20% in each of the past two years.
And the market could still post double-digit advances from there. Earlier in the week, Yardeni reaffirmed his forecast for the index to soar to 7,700 in 2026, indicating a 10% increase from his 2025 view.
“We expect that 2026 will be just another year of the Roaring 2020s, which remains our base-case scenario,” he wrote. “Our Roaring 2020s scenario has had a good six-year run since we first predicted it in 2020.”
GDP growth, consumption and corporate profits have been chugging along, and Yardeni said the decade should avoid an economy-wide recession, while “rolling recessions” may hit different industries at different times.
Deutsche Bank is even more bullish and predicted the S&P 500 will finish next year at 8,000, representing a 17% jump from Friday’s close.
“We see equities continuing to benefit from the cross-asset inflows boom,” analysts wrote in a note. “With earnings continuing to rise and companies indicating they are sticking with their capital allocation plans we expect robust buybacks to continue.”
Elsewhere, JPMorgan expects the S&P 500 to end 2026 at 7,500, but added that it could go to 8,000 if the Federal Reserve keeps cutting rates.
Analysts cited above-trend earnings growth, the AI capital spending boom, rising shareholder payouts, and fiscal policy easing via tax cuts in President Donald Trump’s One Big Beautiful Bill Act.
And if inflation cools more than anticipated, that would clear the way for extra Fed rate cuts beyond the two addition reductions JPMorgan sees.
“More so, the earnings benefit tied to deregulation and broadening AI-related productivity gains remain underappreciated,” the bank said.