Why Could the Stock Rally Continue Through 2026?

TL;DR

The stock rally could continue through 2026 if corporate earnings and the technology-led AI trade remain supportive, with Jonathan Golub maintaining S&P 500 targets of 7,050 for 2025 and 7,800 for 2026. However, more than 150,000 announced layoffs in October, uncertainty about interest rates and tariffs, and the market's heavy dependence on technology stocks create meaningful risks.

Transcript

Welcome to Yahoo Finance's flagship show, Morning Brief. I'm Julie Hyman. Let's get to the three things you need to know today. First up, US stock futures little changed as investors weigh high stock valuations with corporate earnings. Qualcomm becoming the latest tech heavyweight whose stock is getting punished even after strong results. The chipm... Read More

Key Insights

• October layoffs reached their highest level for that month since 2003, with US companies announcing roughly 150,000 job cuts. The total was also the highest single-month figure recorded during a fourth quarter since 2008, highlighting a notable increase in announced workforce reductions.
• Year-to-date job cuts exceeded 1 million, the highest level since 2020. Technology, warehousing, and retail were identified among the sectors leading October's cuts, even though October is normally an important hiring period for retailers preparing for the holiday season.
• Layoffs were attributed to both structural and cyclical pressures. Artificial intelligence was replacing some workers at the margin, while cost cutting, rising expenses, hiring freezes, weaker consumer and corporate spending, business closures, and restructuring also contributed to announced reductions.
• Federal Reserve officials were monitoring layoff announcements, but the weakness had not yet appeared broadly in initial claims or aggregate data. The government shutdown also prevented publication of the official jobs report, leaving policymakers more dependent on private-sector information.
• Lower interest rates could be justified by modest potential job creation, moderating wages, and labor demand that was weaker than desired from a cyclical perspective, according to Federal Reserve Governor Steven Myron. Markets were continuing to price in a possible December rate cut.
• Technology represented roughly 36% of the S&P 500, giving the sector substantial influence over the broader market. Continued gains were described as dependent on the AI trade, with optimism that the AI investment cycle was still at an early stage.
• The stock rally was projected to resume by Seaport Research Partners strategist Jonathan Golub. He maintained S&P 500 targets of 7,050 for the end of 2025 and 7,800 for 2026, despite concerns about valuations, employment, tariffs, and market concentration.
• Tariff policy faced significant legal and economic uncertainty after Supreme Court justices appeared skeptical of using emergency economic powers to impose many tariffs. Nearly $200 billion in tariff revenue had been collected by the fiscal year ending September 30, 2025, raising potential repayment and trade-deal questions.

Questions & Answers

Q: Why could the stock market rally continue through 2026?

The rally could continue if corporate earnings remain supportive and technology stocks keep benefiting from enthusiasm around artificial intelligence. Seaport Research Partners strategist Jonathan Golub expected markets to resume rally mode and maintained S&P 500 targets of 7,050 for 2025 and 7,800 for 2026. The outlook nevertheless depends heavily on technology because the sector represented roughly 36% of the index.

Q: How many layoffs did US companies announce in October?

US companies announced roughly 150,000 job cuts in October. That was the largest number of announced cuts for an October since 2003 and the highest single-month total during a fourth quarter since 2008. Year-to-date reductions also exceeded 1 million, the highest level since 2020, with technology and warehousing among the sectors experiencing the greatest impact.

Q: What caused the surge in announced job cuts?

The reported causes included both structural and cyclical forces. Companies were cutting costs as expenses rose, imposing hiring freezes, closing operations, and restructuring their portfolios. Artificial intelligence was replacing some workers at the margin, while softer consumer and corporate spending also weakened labor demand. Technology, warehousing, and retail were among the sectors leading the announced reductions.

Q: Why were the October layoff figures difficult to interpret?

The layoff announcements showed substantial weakness, but Federal Reserve officials had not yet seen that weakness broadly reflected in initial unemployment claims, aggregate data, or Worker Adjustment and Retraining Notification notices. Private payroll data also indicated that October added roughly 40,000 jobs. The government shutdown prevented the official jobs report from being released, leaving policymakers without their usual benchmark.

Q: How could labor market weakness affect Federal Reserve policy?

Labor market weakness could strengthen the case for lower interest rates. Federal Reserve Governor Steven Myron pointed to modest potential job creation, moderating wages, and labor demand that was not as strong as desired from a cyclical perspective. Markets were pricing in a possible December cut, although officials lacked the official government jobs report because of the shutdown.

Q: Why is the AI trade so important to the broader market?

The AI trade matters because technology stocks represented roughly 36% of the S&P 500, giving the sector significant power to move the overall index. Nvidia, Intel, Google, Meta, and Micron were among the companies being watched. The discussion characterized the AI investment cycle as early, but also emphasized that continued record highs depended substantially on technology performing well.

Q: What tariff issue was the Supreme Court considering?

The Supreme Court was considering whether the president overstepped legal authority by using emergency economic powers to impose many tariffs. Several justices appeared skeptical of the administration's argument, particularly because taxation and spending powers belong to Congress. A ruling against the tariffs could create uncertainty around trade agreements and repayment of nearly $200 billion collected through the fiscal year ending September 30, 2025.

Q: What was at stake in Tesla's shareholder vote?

Tesla shareholders were deciding whether to approve Elon Musk's proposed trillion-dollar compensation package. Most observers mentioned in the discussion expected approval, although Norway's sovereign wealth fund, which held about 1.5% to 1.6% of Tesla stock, planned to vote against it. A key measure of support was whether more than half of outside investors would approve the proposal.

Summary & Key Takeaways

• US stock futures were little changed as investors balanced elevated valuations against corporate earnings. Technology remained central because the sector represented roughly 36% of the S&P 500. The market showed a modest recovery, but its ability to keep advancing was portrayed as heavily dependent on continued strength in the AI trade.

• October brought roughly 150,000 announced job cuts, the highest October total since 2003 and the highest single-month fourth-quarter figure since 2008. Technology, warehousing, and retail were among the hardest-hit sectors. Reported causes included cost cutting, rising expenses, hiring freezes, artificial intelligence, weaker spending, closures, and corporate restructuring.

• Markets also faced uncertainty involving Federal Reserve policy, tariffs, and Tesla. Officials were monitoring layoffs, although the weakness had not appeared broadly in initial claims or aggregate data. Supreme Court justices questioned the administration's emergency authority for tariffs, while Tesla shareholders prepared to decide Elon Musk's proposed trillion-dollar compensation package.