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Key Takeaways
- The chief strategist at Interactive Brokers expects 2026 to be the first negative year for the S&P 500 since 2022.
- Steve Sosnick said his forecast for a modest decline from Tuesday’s close was “cautious,” not outright bearish.
The stock market is headed for a third consecutive year of gains. One analyst warns that you shouldn’t expect a fourth.
Steve Sosnick, chief strategist at Interactive Brokers, expects the S&P 500 to finish next year around 6,500, more than 3% below the benchmark index’s close on Wednesday.
Sosnick’s is one of the most bearish forecasts on Wall Street. In an interview with CNBC Wednesday, however, he said he’s not outright pessimistic. “It’s just more of a cautious number,” he said. Sosnick echoed comments made by Bank of America’s lead U.S. equity strategist, who earlier this week predicted 2026 would be a “lackluster” year for stocks.
Why This Is Important
Wall Street analysts generally expect stock returns to moderate after three years of big gains driven by soaring AI stocks. Concerns about an AI bubble have weighed on the market’s leaders in recent months in a potential precursor to next year’s trading.
History advises caution, according to Sosnick, who said midterm election years tend to be tough for stocks. Uncertainty about what party will control Congress often puts investors in wait-and-see mode leading up to November. Since 1950, midterm years have been the most volatile and worst-performing years in the presidential cycle, according to an LPL Financial analysis.
In recent history, leadership changes at the Federal Reserve have also coincided with market turbulence, said Sosnick. President Donald Trump is interviewing potential successors to Fed Chair Jerome Powell, whose term is set to end in May. Trump has pressured the Fed all year to more aggressively lower interest rates, which the central bank has done three times since September. Investors expect Trump’s pick to lead the Fed will be more sympathetic than Powell to the president’s wishes.
Some on Wall Street are also unnerved by President Trump’s efforts to direct the Fed, which historically has operated independent of elected politicians. The perceived loss of that independence could have painful consequences in the bond and stock markets.
Then there’s the ever-present question of the health of the tech sector. “We’re also just reassessing the AI trade that’s brought us so far,” Sosnick said. After three years of an AI-driven bull market, investors are increasingly nervous about stretched stock valuations and unsustainable spending on AI infrastructure.
Broadcom’s earnings report last week was a prime example of the high bar AI beneficiaries will need to clear to impress Wall Street next year, according to Sosnick. The company easily topped estimates on the top and bottom lines, and forecast growth would accelerate in the coming quarters.
“By any normal stretch of the imagination, Broadcom said everything they needed to say to get a stock to do well,” said Sosnick. “Instead they fell double digits in two days.”
AI stocks were under pressure again on Wednesday. Broadcom (AVGO) shares finished down 4.5%, while Advanced Micro Devices (AMD) dropped more than 5%. AI chip leader Nvidia (NVDA) was off nearly 4%. Oracle (ORCL), which earlier this year was an AI-powered darling, has seen its market cap slashed in recent weeks; it finished today off 5.4%.
