The weather report for the Continental Divide west of Denver that day in February 2014 called for sun, +5-degree temps, and gusts to 20mph, perfect conditions for a daylong winter excursion! Unfortunately, we believed the report. After battling mild altitude sickness, -5-degree temps, and constant 60mph winds for seven hours, my overconfidence was exposed and I nearly succumbed to the elements for lack of remembering the indispensable principle, “mountains make their own weather”. No less do the financial markets create their own volatility, and following the 36 months we just experienced, certain principles are important to remember at a time such as this. Let’s identify those principles as we consider the outlook for the financial markets in 2026.
THE OUTLOOK
Major U.S. banks are universally bullish on the S&P 500 for 2026, though expected returns range from a paltry 4% (Bank of America) to a rosy 18% (Oppenheimer). Supporting this outlook are the facts a) the S&P 500 advance/decline line has been rising with continuity that rivals the morning sun, indicating a broad and healthy advancement,1 b) the CNN Fear & Greed Index stands at 50, or “neutral”, suggesting the psychological euphoria generally cohabitating major market tops is absent, and c) large government and private sector investment in energy sources demanded by AI supercomputers is “LIVE”.2 Balancing positive expectations for 2026 is the Presidential Election Cycle Theory, which measures average S&P 500 returns for each distinct year of Presidential cycles since 1950. The study reveals there have been two years of good average returns (years 1 and 4), one year with great average returns (year 3), and one year with bad average returns coupled with increased volatility (year 2).3 Also on the negative side are the facts a) employment is weakening, b) the subprime consumer is tapped, and c) the credit market has shown signs of tightening, but increased economic efficiency from parabolic technological advancement seems to be neutralizing their impact and bolstering corporate earnings, at least for now.
TWO FACTORS TO CONSIDER
- Positive: The market doesn’t seem irrational quite yet, but even if the studies are wrong and it is, the market can remain irrational longer than you can remain solvent. Fight inflation, not the trend!
- Negative: There are exceptions, but investment risk generally rises in tandem with rising valuations (P/E Ratio). Today’s S&P 500 valuation rivals historical peaks, and new investments into large US stocks better understand this research.
CONCLUSION
A highly disruptive global megatrend is in full swing with the widespread adoption of AI and other technological advancements. This trend may render market research less reliable as economic learning and automation accelerate. Dangers lurk but the bull market appears intact. Returns in 2026 may be modest or even negative, and heightened volatility is highly probable as the market prepares for year 3 (2027), the year of great average Presidential Cycle returns.
PRINCIPLES TO REMEMBER IN LATE STAGES OF A BULL MARKET
- Lean, don’t jump. Maintain a diversified portfolio with appropriate asset allocation consistently over time. Never allow emotions, economic forecasts, or geopolitical developments affect investment decisions; rather, use high quality tools to push decisions based on an investment plan. Tweak your allocation, don’t shuffle it.
- Manage risk with an exit plan, especially on speculative and highly appreciated securities. Invest large, but speculate small, and only with well-researched, high conviction ideas.
Don’t forget, mountains make their own weather! May God bless your desires to be a good steward and a wise investor, Shaun.
“Precious treasure and oil are in a wise man’s dwelling, but a foolish man devours it.” ~Proverbs 21:20
1 Market In Out Stock Screener, S&P 500 Advance/Decline Line, January 15, 2026
https://www.marketinout.com/chart/market.php?breadth=advance-decline-line
2 Doc Eifrig’s Health & Wealth Review, “The Banks Are Predicting a Good Year for Stocks”, January 11, 2026
3 Wealth Management, “Presidential Election Cycle Theory”, August 2024 White Paper by John Heilner, CIO
https://www.wtwealthmanagement.com/whitepapers/2024-08/
Disclosure: Old Forge Wealth Management, LLC is a registered investment adviser. This material is for informational and educational purposes only and should not be construed as investment advice or a recommendation to buy or sell any security. This commentary is general in nature and not tailored to the circumstances of any specific investor. The principles discussed are general investment considerations and may not be appropriate for every investor. Individual circumstances, risk tolerance, and objectives should be considered. Market commentary and outlooks are based on current conditions and third-party sources believed to be reliable; however, accuracy is not guaranteed. Forecasts, projections, and return expectations are inherently uncertain and are not guarantees of future performance. Past performance is not indicative of future results. Investing involves risk, including possible loss of principal. Indexes referenced are unmanaged, do not reflect fees or expenses, and are not available for direct investment.