Target Allocation Monthly: Unwrapping 2026 Market Forecasts

Twas the month before 2026, and all across Wall Street, analysts and economists were busily sketching their visions of the year ahead. The median S&P 500 estimate currently hovers near 7,450, with the grumpier forecasters penciling in something closer to 7,100, while optimists quietly whisper of a rally north of 8,000. A recession seems unlikely but still tiptoes in the background, with various models placing the odds somewhere between 10% and 30%. Over at the Fed, prediction markets have Kevin Hassett and Kevin Warsh running neck-and-neck to be appointed the next Fed Chair, adding intrigue to how the institution’s long-term philosophy may evolve. Rate cut expectations vary significantly, only deepening the suspense: the Fed currently signals just one in 2026, Polymarket traders lean toward two, and we suspect both may ultimately prove too modest. And then there are the midterms – always good for a bit of market drama. Political bettors give Democrats only one-in-three odds of taking the Senate but roughly a three-in-four chance of winning the House, putting pressure on the administration to try and turn the tides before November. Despite so many big questions still unresolved – Fed leadership, the depth of next year’s easing, and the political backdrop – we see 2026 as a year where markets can still grind higher, albeit with likely twists, turns, and volatility along the way. Our focus remains on what we can control: diversification, discipline, and thoughtful risk-taking, positioning portfolios to participate in upside while staying resilient should the macro path prove bumpier than consensus currently expects.

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