Wall Street analysts expect S&P 500 to rise further in 2026 amidst rising headwinds

As we approach the final weeks of 2025, Wall Street remains broadly optimistic about the long-term trajectory of the S&P 500, even as short-term volatility resurfaces. After a year defined by a massive, $30 trillion-plus rebound from the "Donald Trump-tariff lows" in April towards record high levels, Wall Street is currently encountering speed bumps at elevated levels.

Majority of the brokerages have projected the S&P 500 to rise anywhere between 10% to 20% going into the new year, with targets crossing levels of 8,000.

Brokerage	End-2026 Target	Potential Upside
Oppenheimer AMC	8,100	18.6%
Deutsche Bank	8,000	17.2%
Morgan Stanley	7,800	14.2%
Goldman Sachs	7,600	11.3%
JPMorgan, HSBC	7,500	10%

Despite the recent dip, institutional confidence in corporate earnings remains high. Analysts see a "broadening" market where sectors beyond just Big Tech begin to carry the load.

Why Is Wall Street Under Pressure?

The S&P 500 recently hit record highs but has dropped in the last two days. Investors are moving money out of tech stocks, a trend called the “Great Rotation.” AI-focused companies like Oracle and Broadcom gave weaker forecasts and warned of rising costs, raising concerns that the AI stock hype may be slowing.

At the same time, uncertainty over future interest rate cuts by the Federal Reserve has made investors more cautious, reducing the risk-taking that fueled the recent rally.

Here are some issues that could pose as potential risks for the US market:

AI valuations & spending fatigue

The major reason behind the recent fall on Wall Street could turn out to be the biggest market risk. With Oracle's poor results and Broadcom's lack of commentary for the future, the street is worried whether this will have a contagion effect on the rest of the AI hyperscalers.

While Broadcom and Oracle extended their losses last Friday, shares of Nvidia, AMD, and other big tech names also fell between 1.5% to 5%.

The 2026 midterm elections

Political uncertainty is clouding long-term fiscal planning. Markets are factoring in the possibility of a "divided government" or major policy changes that could affect corporate tax rates and stimulus measures, which have supported earnings growth throughout 2025.

The midterm elections now hold greater significance after the Democrats swept most of the local elections that took place across the country, including the much talked about New York Mayoral election.

Persistently High Inflation

Inflation in the US continues to remain persistently above the Fed's 2% target, which it chose to put on the backburner to address the labor market weakness, resulting in three successive rate cuts.

However, the inflation has been the major divided among the Fed officials, two of whom voted against a rate cut in the most recent policy.

All eyes are now on the November CPI data, which will be released this Thursday.

The Fed has made it clear that policy rates have now reached levels where they would assess incoming data and take their rate decisions one policy at a time.

Tariff Uncertainties From Supreme Court

Investors also have their eyes set on the US Supreme Court, where the legality of the Trump Administration's tariffs has been challenged.

Multiple officials of the Trump administration have warned that overturning of the tariffs would lead to the US refunding billions in tariffs, which would hurt the economy and also create plenty of uncertainty.

However, the administration has also clarified that in case of a scenario where the Supreme Court overrules the tariffs, they have multiple other options to continue with the tariff regime.

The Next Fed chair

Currently, the race for the next Fed Chair is a toss-up between Kevin Hassett, the White House National Economic Council Director, and Kevin Warsh, former Fed Governor.

US President Trump has remarked that Warsh is at the top of his mind to succeed Jerome Powell once his term ends in May 2026, as he is aligned with his idea of lower interest rates.

However, the worry on the street is that the Federal Reserve may now involve political interference for monetary policy, thereby undermining its independence, which could turn out to be a risk for the markets.

Economists are also worried that a rapid pace of monetary easing could stoke inflation, which already remains above the Fed's 2% target.

Also read: Tom Lee sees S&P 500 hitting 7,700 in 2026, extending bull market to fourth year