US stock market optimism remains strong as new survey data reveals significantly higher expectations for 2026, with the latest Markets Pulse survey predicting another substantial advance that would mark a historic four-year streak not seen since the end of the previous century. This represents a notable shift from earlier Wall Street strategist forecasts of more modest gains.

Survey Results Show Bullish Sentiment

The S&P 500 Index will climb 20% in 2026, according to 60% of the 590 respondents to the Markets Pulse poll conducted in the last three weeks of December. This projection substantially exceeds the earlier Bloomberg strategist consensus of 9.20% gains, indicating growing market confidence despite the index's already impressive performance trajectory.

Less than a third of participants expected losses for the stocks benchmark while only a tenth saw more than 20% gains for the index. The survey reveals a stark contrast with currency expectations, as more than three-quarters of respondents predict the dollar's struggles will persist into a second year.

Market Performance and AI-Driven Rally

The optimistic projections build upon an exceptional recent performance, with the S&P 500 finishing with a 16% gain and achieving 39 record highs throughout the year. Seemingly endless demand for artificial intelligence investment has been the primary catalyst propelling the equity benchmark to these new heights.

Frank Monkam, head of cross asset macro strategy and trading at Buffalo Bayou Commodities, noted that "the macro mix increasingly points to an environment where dollar weakness and bullish equities could very much coexist."

Leadership Shift and AI Bubble Concerns

Survey participants are anticipating significant shifts in equity market leadership, with particular focus on technology giants that have driven recent gains. When asked which outperforming assets are most likely to turn into losers in 2026, more than a third picked chip giant Nvidia Corp, despite the company's 39% gain making it the second-best performer among the Magnificent Seven group.

When asked to identify trades investors are not yet positioned for, the bursting of the AI bubble garnered the largest share of participant responses at 33%, highlighting growing concerns about sustainability of technology valuations. The precious metal extended its record-breaking run following a weekend US raid that captured Venezuelan President Nicolas Maduro, spurring demand for its perceived haven qualities.

Dollar Weakness and Policy Implications

The survey reveals strong conviction regarding continued dollar weakness, with 76% of participants expecting declines to persist following the worst performance since 2017. Among those expecting declines, 42% anticipate losses for the Bloomberg Dollar Spot Index between 2.50% and 7.50%.

The greenback is expected to face pressure from anticipated Federal Reserve policy, with markets pricing in a further half percentage point of interest-rate cuts in 2026, following three-quarters of a point of easing in the previous year. Conversely, the outlook for lower borrowing costs, combined with fiscal stimulus from President Donald Trump's tax-cut law, is viewed as a major catalyst for continued stock gains.

Risk Factors and Historical Context

Despite the bullish sentiment, several factors warrant caution. Historical data shows that annual returns for stocks and the dollar have diverged half the time over the last two decades, with stocks typically thriving while the dollar languishes in environments with sufficient growth to support risk sentiment but slow enough to sustain policy accommodation.

Jane Foley, head of currency strategy at Rabobank in London, suggested that widespread bearish dollar sentiment might actually provide support: "The dollar should be far more resilient even on bad US economic news this year. If we are to assume that US stocks move higher this year, I would expect that to allow the dollar some support — even though many investors will hedge their dollar exposure."

The potential for a four-year winning streak would represent a rare achievement in market history, last accomplished at the end of the previous century, underscoring the exceptional nature of the current bull market cycle driven primarily by artificial intelligence investment themes.

Major US stock indices closed marginally lower on Tuesday as holiday-thin trading volumes and mixed sector performance characterized the session. The modest declines came as gains in communication services stocks were offset by weakness in technology and financial sectors.

Market Performance Overview

The three major indices posted small losses in choppy trading conditions:

Trading volumes remained significantly below average at 12.63 billion shares, compared to the 20-day average of 16.03 billion shares. This thin volume environment, typical during holiday-shortened weeks, contributed to heightened market volatility according to analysts.

Meta Leads Communication Services Higher

Communication services emerged as one of the day's best-performing sectors, driven primarily by Meta Platforms' 1.10% gain. The social media giant announced its acquisition of Chinese-founded artificial intelligence startup Manus, part of accelerated efforts to integrate advanced AI capabilities across its platforms including Facebook and Instagram.

The acquisition highlights the ongoing corporate focus on artificial intelligence integration, which has been a key driver of market performance throughout the year.

Technology Stocks Face Pressure

Information technology stocks ended the session lower despite mixed individual performances:

These heavyweight technology stocks had previously enjoyed a six-session winning streak, their longest since September, before snapping that run on Monday. The recent rally had helped propel the S&P 500 to record highs last week.

Mark Hackett, chief market strategist at Nationwide, noted that "the growth rates are going to converge between technology and everything else next year and the valuation gap is so wide, it absolutely is justified to see repositioning. It's just a healthy rebalancing of allocations more so than an emotionally driven sell-off."

Financial Sector Weighs on Markets

Financial stocks contributed to the day's declines, with several major institutions posting losses. Goldman Sachs and American Express weighed particularly on the Dow Jones Industrial Average. Citigroup fell 0.80% following its announcement that the board approved the sale of its Russian unit, AO Citibank, to Renaissance Capital. The transaction will result in a pre-tax loss of approximately $1.20 billion, largely related to currency translation adjustments.

R. Scott Siefers, analyst at Piper Sandler, commented that "investors will look past it as a non-core item and focus more on the idea that resolution of another legacy issue is getting closer to the finish line - a positive for Citi's ongoing transformation."

Energy Sector Outperforms

Energy stocks bucked the broader market trend, with the S&P energy sub-index rising 0.80% to outperform other sectors. The gains came as oil prices found support from geopolitical tensions, with Russia indicating it would toughen its negotiating stance after accusing Ukraine of attacking a Russian presidential residence.

Market Breadth and Federal Reserve Outlook

Market breadth showed a negative bias across both major exchanges. On the NYSE, declining issues outnumbered advancers by a 1.06-to-1 ratio, with 190 new highs and 80 new lows recorded. The Nasdaq showed broader weakness, with declining issues outnumbering advancers by a 1.64-to-1 ratio as 2,913 stocks fell while 1,780 rose.

The S&P 500 posted 3 new 52-week highs and one new low while the Nasdaq Composite recorded 33 new highs and 205 new lows.

The US Federal Reserve agreed to cut interest rates at its latest meeting only after a deeply nuanced debate about the risks facing the US economy, according to minutes of the latest two-day session. The Fed next meets on January 27-28, with investors currently expecting the central bank to leave its benchmark rate unchanged.

Year-End Performance and Outlook

Despite Tuesday's modest declines, both the S&P 500 and Dow Jones Industrial Average remain positioned for their eighth consecutive month of gains, which would mark their longest monthly winning streak since 2017. The S&P 500 has gained approximately 17.00% year-to-date, supported by artificial intelligence-driven enthusiasm that has helped US markets outperform international counterparts.

Some investors are eyeing a "Santa Claus rally," in which the S&P 500 typically posts gains over the last five trading days of the year and the first two of January, according to the Stock Trader's Almanac.