The S&P 500 is expected to reach 7,300 points by the end of 2026! Tom Lee's team issues an early warning: Spring will kick off a period of turbulence

Signs of stagnation in leading tech companies' growth have begun to emerge, and the three-year bull market in U.S. stocks faces a critical test. In a mail report released on January 9, Mark Newton, Research Director at Fundstrat Global Advisors, stated that the S&P 500 faces a "turbulent" 2026. Although the index's year-end target could reach 7,300 points, the market will experience a consolidation phase before reaching this goal.

Newton predicts that the current rebound will last another six to eight weeks, after which the stock market will encounter resistance. "This is expected to be a year of consolidation and volatility, likely starting in late February or early March, with pressure possibly lasting until the end of May. The decline in the tech sector is the main catalyst, as leading companies like Nvidia and Microsoft, after experiencing three years of growth, are showing signs of stagnation."

01 Unified outlook: Tom Lee's team remains optimistic about the overall market in a turbulent year

After experiencing an "internal disagreement" event at the end of last year, Tom Lee and his team of analysts have been highly unified at the start of this year. They all agree that the market will face turbulence this year but remain optimistic about the overall trend.

In the report, Mark Newton pointed out: "The market has shown obvious volatility in response to tonight's U.S. employment data and concerns over Supreme Court rulings, which will dominate short-term sentiment." This cautious optimism aligns with Tom Lee's previous forecast that the S&P 500 will reach 7,700 points by the end of 2026.

Currently, market consensus expects about 70,000 new non-farm jobs added in December, with the unemployment rate potentially falling slightly to 4.5%. The monetary market anticipates at least two rate cuts by the Federal Reserve in 2026, which will provide some support to the stock market.

02 Historical patterns and current realities: U.S. stocks face the "Three-Year Law" test

U.S. stocks continued their bull run in 2025, with the S&P 500 rising by 16.39%. However, this gain means failing to hit the milestone of "more than 20% gains for three consecutive years." Historically, this index has only achieved such a feat during a tech-driven bull market that started in 1995 and ended in early 2000 with the burst of the internet bubble.

Since 1949, the S&P 500 has only experienced four instances of three or more consecutive years with gains exceeding 10%. After these periods of continuous growth, the average return in the following year was only 4.57%, far below the overall annual average return from 1950 to 2024.

Adam Tindall, Chief Technical Strategist at LPL Financial, noted that for the S&P 500, any year with a gain of 15% or more typically results in an average return of about 8% the following year. In these years, the index often first experiences an average decline of about 14% before bottoming out, then rebounding and reaching new highs.

03 Tech stocks at a critical point: AI boom faces real-world tests

Mark Newton emphasized the "tech sector slowdown" in his report, which warrants close attention. After an extraordinary three-year growth period, leading companies like Nvidia and Microsoft are indeed showing signs of stagnation. This judgment aligns with market concerns over AI valuation and investment returns.

Lazard Asset Management stated in its "2026 Investment Outlook" that AI-related capital expenditures are increasingly relying on debt financing, and related assets may become obsolete quickly, risking overcapacity and delayed returns.

The Nasdaq Composite, which has a high weighting in tech stocks, fell 0.4% on January 8, dragged down by declines in Nvidia, Palantir, and Broadcom. Although funds later flowed back into AI-related stocks, volatility has clearly increased.

Stovall, Chief Investment Strategist at CFRA, said: "For U.S. stocks to continue delivering strong double-digit returns in 2026, all positive factors need to come into play, while many adverse factors can be effectively mitigated."

04 Multiple factors intertwined: Federal Reserve policies and geopolitical variables

In 2026, U.S. stocks will face multiple intertwined variables, including the change of Federal Reserve Chair, geopolitical tensions, and uncertainty over tariff policies.

Fed Chair Powell will step down in May 2026, a topic of rare discussion in decades. Former President Trump has implicit demands for the new Fed Chair to cooperate in rate cuts and suppress long-term interest rates.

Geopolitical risks remain top of mind. U.S. airstrikes in Venezuela have sharply worsened the situation in the Caribbean, and tariffs continue to be a key policy tool for the U.S.. Last Sunday, Trump stated that if India fails to meet U.S. restrictions on Russian oil purchases, the U.S. may impose tariffs on India.

Industrial Securities noted in its report that besides rate cuts, other monetary easing policies are also worth expecting in 2026, including restarting asset purchases or unconventional operations similar to yield curve control. These policy variables will directly impact market liquidity conditions.

05 Investment strategies: Finding opportunities amid volatility

Despite the challenging outlook, Tom Lee's team remains optimistic about the year's end market. Newton's target of 7,300 points aligns with most Wall Street institutions' forecasts. Wall Street's target range for the 2026 S&P 500 is between 7,000 and 8,100 points, with an average target close to 7,500, implying a potential increase of about 9%. The driving logic is based on corporate earnings growth, Federal Reserve rate cuts, and the spread of AI technology.

Corporate earnings expansion remains a key support. London Stock Exchange Group expects that, based on a 13% earnings growth for S&P 500 companies in 2026, the actual earnings increase will exceed 15%. With fiscal stimulus and loose monetary policies in effect, the growth drivers are expected to expand from a few tech giants to a broader corporate group.

Fundstrat's Tom Lee is optimistic about the technology, materials, energy, and financial sectors. He believes 2026 will break the historical cycle of Bitcoin ending four consecutive years of decline, with tech still leading the way.

As late February approaches, investors should closely monitor tech earnings reports and Federal Reserve policy signals. Will this spring's volatility be a temporary correction or a prelude to a deeper decline? The coming months will tell.

What are your thoughts on the U.S. stock market in 2026? Feel free to share your views in the comments. Whether it's gold as a safe haven asset or technological innovations in cryptocurrencies, the market's diversity and complexity offer plenty of discussion topics. We hope this article provides valuable insights and sparks further thinking and discussion.