Stock Market and Economic Forecast for the Rest of 2026…From Dr. Allen Sinai

The most shocking surprise during the first half of 2026 wasn’t the US Supreme Court striking down Trump-era tariffs…the war in the Persian Gulf…crude oil breaking $100 a barrel…or the disruptive nature of US politics. It was the remarkable resiliency of the stock market, which has shrugged off so many external shocks and chaos to hit all-time highs more than a dozen times.

“The equity bull market will keep rolling,” says top economist Allen Sinai, PhD. His reasoning: Strong corporate profits and the continuation of the incredible artificial intelligence (AI) productivity boom should lift stock prices to double-digit gains for the seventh time in the last eight years. But investors should be prepared for excessive volatility in stocks and periodic corrections because higher inflation and several negative shocks have significantly raised the risk for a recession.

Bottom Line Personal asked Dr Sinai for his stock market and global economic outlook for the rest of 2026 and beyond. Here are eight predictions for the rest of 2026…

Prediction #1: The S&P will rise about 15% by year-end (reaching to 7,800)…and the Dow will finish about 14.8% higher (at about 54,500)

His reasons for these impressive gains…

Robust corporate earnings for US companies averaging 15% to 20% for 2026.

Reasonable market valuations: The S&P 500 should run a price-to-earnings ratio of 20, maybe higher, and above its historical long-term average.

Rebound of the AI version of the Magnificent Seven megacap stocks (Alphabet, Amazon, Apple, Broadcom, Meta, Microsoft and Nvidia). “These companies are dominant and highly profitable, and their stocks are not at bubble-like valuations,” says Dr. Sinai.

His favorite areas of the stock market now…

Energy due to an extended period of elevated crude oil and energy prices.

Defense, benefitting from war and ongoing geopolitical conflicts in the Middle East and Eastern Europe and military spending initiatives.

Technology, except for software. Software stocks have been under siege, down about 14% this year through April. “New AI systems are threatening the sector’s business model,” points out Dr. Sinai, “because they can do analytic, coding and customer-support tasks that used to require multiple software tools.”

Prediction #2: The US economy continues to expand…surprisingly so

“It’s extraordinary that economic growth keeps humming along despite all the negative shocks—tariffs, wars, politics and so many negative headlines,” says Dr. Sinai. Gross Domestic Product (GDP) should rise a brisk 2.8% for the year—that growth supported by consumer spending thanks to major tax breaks from the One Big Beautiful Bill Act and a boom in business capital spending, essentially AI. “Booms in new technology typically last five to seven years, and we’re only halfway through that cycle,” says Dr. Sinai.

Prediction #3: Higher price inflation

As measured by the Consumer Price Index, inflation is likely to range between 4% and 5% by year-end, up from 3.8% at the end of April.  Consumers will feel it not just in higher gasoline and fuel prices but higher food prices, travel costs and services as well. Crude oil prices are likely to average $90 per barrel WTI (West Texas Intermediate, a grade of crude oil used for benchmarking) over the year even if shipping traffic through the Gulf of Hormuz normalizes. Damage to energy infrastructure in the region will require months, if not years, to repair, and insurance markets need to recalibrate shipping risks.

So much uncertainty creates heightened economic risk to the economy. “At the beginning of the year, there was just a 25% chance of a recession,” says Dr. Sinai. “But now this is 35% because of the spike in energy prices.” Big wild card: “Whether elevated oil prices continue to feed into inflation for the rest of the year?” says Sinai. That could cause a toxic mix of higher inflation, higher interest rates and higher unemployment known as “stagflation.”

Prediction #4: Big changes at the Federal Reserve…with new Chairman Warsh

The Federal Reserve has a dual mandate. It is required by the US Congress to promote maximum employment and, at the same time, stable prices. The Fed balances these often-conflicting goals by adjusting short-term interest rates. New Fed chairman Kevin Warsh, who took over in May, will bring reforms and a re-evaluation of how the Fed has operated for last 20 years. Example: “Warsh will be less worried about keeping inflation low and more about growth and jobs,” says Dr. Sinai. Prediction for the rest of this year: Despite Warsh being more rate-cut friendly than his predecessor Jerome Powell, the uptick in inflation is likely to tie his hands, at least until the conflict with Iran is resolved. The policy federal funds interest rate should finish the year unchanged in the 3.50%-to-3.75% range.

Prediction #5: Bonds stay risky

Expect the 10-year Treasury to rise toward 4.75% by year-end, pushed up by concerns over huge Federal deficits, debt and sticky-high inflation. Because bond prices fall when yields rise, it is likely that total bond market returns will be negative this year. Fixed-income investors should stick with short-term Treasuries and high-quality longer duration corporate bonds.

Prediction #6: The Iran war…a stalemate

“The forecast assumes the conflict with Iran neither ends nor accelerates.” says Dr. Sinai, “similar to the Ukraine-Russia war, with a drawn-out series of ceasefires and negotiations and each side hoping to outlast the other.” Improvement and resolution will come slowly. Why this matters: This US-Iran strategic limbo will create a roller-coaster for investors. “Any hint of a peace treaty will set off a powerful rally,” says Dr. Sinai. “But signs of an escalation of fighting, which could further disrupt oil production and create deeper shocks to the global economy, could produce a market correction.” Expect lots of volatility.

Prediction #7: Divided government returns in the mid-term elections

The Democrats likely will retake control of the US House of Representatives in the mid-term Congressional elections this fall. “That creates the kind of political gridlock that Wall Street and investors prefer because it will reduce the chance of policy surprises from Washington and Trump administration disruptions,” says Dr. Sinai.

Prediction #8: AI will not doom the labor market

“It is easy to get lost in the dystopian narrative that AI is about to steal all our jobs,” observes Dr. Sinai. In the first half of 2026, AI has been the primary driver of layoffs in the tech industry. Amazon fired 30,000 employees in the last six months…the financial-services company Block eliminated more than 4,000 people, or 40% of its workforce. “Despite this,” says Dr. Sinai, “the unemployment rate is likely to wind up at an historically relatively low 4.7% by the end of 2026.”

The truth is technological innovation has been replacing human workers for centuries. While specific roles were displaced, new industries have always emerged that not only make up for job losses but actually expand the work force. And keep in mind other massive trends are impacting the structure of the labor force positively. Example: More than 70 million baby boomers will have reached age 65 by 2030. Servicing the wide-ranging needs of the elderly will bring major opportunities for employment in health-care and support services.