Stock Market Outlook: Choppy Returns Expected in 2026, Say iCapital's Basak and Panel

Market Outlook for the New Year

• 📈 The panel anticipates a constructive year for the stock market, but with choppier returns than previously seen.
• 💡 Key tailwinds supporting the market include stronger earnings growth, the ongoing AI narrative, and the Federal Reserve's accommodative stance.

Factors Influencing Market Performance

• ⚠️ The AI rotation story, while strong, has somewhat hampered larger-cap names, impacting overall market performance.
• 📊 Rate sensitivity is a significant factor, with potential upside risk to longer-term yields despite anticipated rate cuts.
• 📉 A key difference from the previous year is the shift from rising earnings estimates to cutting earnings estimates, setting a lower bar but potentially a higher hurdle for growth.

Santa Claus Rally and Market Significance

• 🎅 The discussion touches on the significance of the Santa Claus rally, with one expert noting that its absence historically has not dictated early-year market performance.
• ❓ The panel generally dismisses the predictive power of short-term rally patterns, focusing instead on broader macroeconomic trends.

Valuations and Earnings Growth

• 🎯 A lower return year is expected to translate into valuations staying relatively stable, with earnings growth being the primary driver of gains.
• 💰 The market started and ended the previous year at similar valuation multiples, indicating that earnings upside was the main contributor to market gains.
• ⚠️ Without significant room for multiple expansion, the market may experience volatility as it absorbs earnings growth.