Positive Outlook for Stock Market in Late 2026

The stock market shows promise as the final weeks of 2026 unfold, according to Société Générale. The French investment bank highlights several bullish factors expected to lift stocks entering 2027:

1. Improving Conditions for Consumers

Oil prices have been a significant challenge for the equity market since the US-Iran conflict began. Brent crude rose from $65 a barrel in February to $112 in April. However, recent cooling trends have US oil prices at $86 a barrel and Brent at approximately $91. This decline is beneficial since oil influences inflation, and lower prices should alleviate consumer costs at the pump. It may also decrease the pressure on interest rates, aiding both consumers and stocks.

Additionally, jobless claims have hit a multi-decade low, indicating strong economic growth.

2. Long Downward Momentum

Société Générale’s momentum indicator, which tracks month-over-month price changes across asset classes, has been consistently negative. This trend suggests a potential turnaround. According to Manish Kabra, the chief US equity strategist, this decline has lasted longer than previous notable market events, such as the oil sell-off in March.

3. Clarity Post-Midterm Elections

Historically, election results provide market clarity, which investors favor. In the six months following the last 20 midterm elections, the S&P 500 increased by an average of 12.7%. In cases where Democrats controlled both the House and Senate with a Republican president, the market surged 15.7%.

After the election, AI stocks experienced a sell-off, but investors shifted to other market areas, as seen when the S&P 500 fell 2.6% despite 263 stocks rising.

Investment Strategy for the Rally

Société Générale predicts the S&P 500 could reach 8,000 by the end of 2026, up 7% from current levels. If factors align, such as oil falling to $80 a barrel and 10-year Treasury yields dropping to 4%, the index might rise 30% to 10,000. Kabra advises overweighting the S&P 500 equal-weight index.

Kabra also suggests investing in utilities due to their stability when bond yields fall. These stocks offer bond-like returns. Consumer-sensitive stocks are another focus as the Federal Reserve nears “peak hawkishness” in early 2027. Easing Fed policies typically boost consumer spending by reducing borrowing costs.

Investment options for these strategies include the Invesco S&P 500 Equal Weight ETF (RSP), the State Street Utilities Select Sector SPDR Fund (XLU), and the Vanguard Consumer Discretionary ETF (VCR).

Author William Edwards, a senior investing reporter at Business Insider, provides regular insights into the US stock market and economy.