Equities to Get Boost From Robust Earnings in 2026 But Near-Term Fed Path Uncertain, Analysts Say

08:34 AM EST, 01/02/2026 (MT Newswires) -- US equity markets are poised to get a boost from strong corporate earnings this year as spending continues on artificial intelligence, while macro volatility and a change of Federal Reserve chair cloud the near-term monetary policy path, according to analysts.

The S&P 500 rose 16% in 2025, while the technology-heavy Nasdaq Composite jumped 20%. The Dow Jones Industrial Average rose 13%. All three benchmark equity indexes closed at new record highs several times during 2025, their third straight year in the green.

Markets received a boost from solid corporate earnings, enthusiasm around AI despite some valuation concerns, and optimism about the Fed's monetary policy easing.

"The US economy weathered a whirlwind of change in 2025, contending with constantly evolving trade policy, a softening labor market, and the longest government shutdown on record," Wells Fargo Investment Institute said in a client note on Monday. "A weak start and finish to 2025 left full-year growth slightly below its pace in 2024 despite the strong performance during the middle two quarters of the year."

The S&P 500 is expected to reach 7,500 this year, supported by roughly 14% earnings growth, with almost 50% of that contribution coming from Tech+ sectors, UBS Securities said in a Dec. 8 client note. The benchmark closed on Wednesday before the New Year's Day holiday at 6,845.50.

In 2026, Tech+ is expected to see about 21% earnings per share growth, and a 22% gain seen for the so-called Big 6, though the bar for Tech+ continues to be high as concerns around capital expenditures persist, UBS said.

The Big 6 refers to Nvidia (NVDA) , Apple (AAPL) , Microsoft (MSFT) , Amazon (AMZN) , Alphabet (GOOG, GOOGL), and Meta Platforms (META) , according to UBS.

Nvidia (NVDA) and Dell (DELL) are among the major cloud and semiconductor names that are seeing the most direct revenue impact from the AI boom, while Microsoft (MSFT), Salesforce (CRM) , ServiceNow (NOW) are among the software majors that are deploying AI agents in their businesses, UBS said.

Nvidia (NVDA) has been at the center of recent AI-focused deals, including one in which it agreed to invest up to $10 billion in Amazon (AMZN)-backed Anthropic and a separate accord to invest $5 billion in Intel (INTC) . The chipmaking giant also invested $2 billion in Synopsys (SNPS) and announced a deal to invest as much as $100 billion in Microsoft (MSFT)-backed OpenAI, the parent of generative AI chatbot ChatGPT.

Alphabet's Google (GOOG), Facebook parent Meta, and e-commerce giant Amazon (AMZN) are already seeing "billions" in incremental revenue from advertisement products driven by AI, while Tesla (TSLA) and General Motors (GM) are among the leaders in AI-driven autonomous driving, factory automation, and product design, UBS said.

"Across US sectors, AI is moving from hype to operational reality. The most advanced adopters are already seeing measurable gains in productivity, cost savings, and, in select cases, revenue growth," UBS said. "AI is set to be a defining driver of US corporate performance in the years ahead."

Walmart (WMT) , Home Depot (HD) , AT&T (T) , Verizon (VZ), and T-Mobile (TMUS) are among the notable names that are benefiting from or increasing AI adoption. Other big names on that list include Eli Lilly (LLY) , Pfizer (PFE) , UnitedHealth (UNH) , Bank of America (BAC) , JPMorgan (JPM) , Lockheed Martin (LMT) , Northrop Grumman (NOC) , and Chevron (CVX) , according to UBS.

Wells Fargo Investment Institute said uncertainty around tariff developments and a new Fed chair are likely to add to market volatility throughout 2026, but financial markets are expected to get a boost from factors including projected growth in AI-related investments, expanding across sectors. Jerome Powell's term as Fed chair is set to end in May.

"We view the US as the engine of global economic expansion in 2026, supporting our preferred tilt toward US assets in a diversified portfolio," Jennifer Timmerman, investment strategy analyst with WFII, said in the note. "We believe strong corporate earnings growth will power equity-market gains as the economy reaccelerates and AI- and tech-related spending broadens across companies and market sectors."

The firm said it favors US large- and mid-cap equities and sees the most value in the financials, industrials, and utilities sectors. "We believe these sectors are more effective ways to lean into the AI theme at more attractive valuations than the more richly valued information technology sector, where we currently hold a neutral rating that still implies a full portfolio allocation," Timmerman said.

The Fed is expected by WFII to cut key interest rates twice in early 2026, driven by a "mild economic softening." Last year, the central bank delivered three back-to-back 25-basis-point cuts amid concerns about the labor market.

Stifel expects the Fed to cease further monetary policy easing through at least the first quarter of this year in the absence of "compelling evidence" of additional cooling in the labor market, amplified by missing or delayed data due to the recently ended record-long federal government shutdown.

"Taken together, a solid (economic) growth profile coupled with still-elevated inflation will presumably limit the broader downside potential for rates, resulting in as few as one additional (25-basis-point) cut over the next six months," Chief Economist Lindsey Piegza said in a Dec. 19 note. "Unless inflation unexpectedly and meaningfully decelerates or the employment picture unexpectedly deteriorates, there is little justification, let alone a sense of urgency, to further reduce policy."

Last month, the Fed's Summary of Economic Projections indicated that policymakers continue to see just one rate cut this year, while they raised their annual US economic growth views through 2028.

"Inflation is likely to remain notably above the Fed's 2% target at (2.5% to 3%) in 2026, with the (Federal Open Market Committee) unable to reach its 2% goal until 2028 or beyond," Piegza said.

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