US Markets Outlook 2026
Aug 6, 2025 - Anurag Singh
1. US Exceptionalism continues: #S&P500 continued to rock another year in 2025 with 16% gains while #Nasdaq clocked 19%. The sleeping giant #Russell too had a 11% year as small caps emerged out of hibernation. The rally was across the board and sectors. Nearly 30% of the entire market cap is still concentrated in just 7 stocks although it is now moving in better proportion vs last year. While this concentration is unprecedented, so is the domination of these firms. There is no clear competition in sight, for now. Long story short, US continues to surprise the world & stays the only reliable large scale equity story. EU & China may do better but I wish I could say the same for their stock markets.
2. S&P500 EPS estimates are for 12% growth in 2026: That brings S&P 500 at 22x forward multiples.Broadening of rally underway for the other 493 stocks outside of the 7 Big Tech stocks. The sectors to gain are financials, healthcare, Industrials, communication services, utilities(yes) & consumer discretionary. Valuations continue to be very depressed in Russell. A larger question confronting mega-tech stocks is this: Is the AI story real & what is the ROI? Estimates vary on how much jobs AI can replace from 5% to 65%. Earnings growth differential for Mag 7 vs the rest has been shrinking now: 2023 had a 64% delta, 2024 was 32% delta & barely 10% in 2025. The rest super 493 grew earnings by 10% vs 22% for Mag7.
3. NVIDIA Frenzy is losing steam: NVIDIA now commands a $190 BN revenue, a base that is pretty large to grow from. As predicted last year, the stock price had priced too much optimism & so delivered just (for Nvidia) 30% returns in 2025. This year may still see rise in revenues but moderation in valuations. Competition is emerging from substitutes of Blackwell chip & those high margins of 75% may not sustain. At the peak valuation, NVIDIA was bigger than 5 sectors combined ie Consumer Staples 6%, Energy 5%, Utilities 2.4%, Real estate 2.4% & Materials 2.2%. NVIDIA data centers revenue grow from $4.3 BN in Q1 2024 to $10 BN (Q2), $14 BN (Q3), $18 BN (Q4 2024) & $22 BN in Q1 2025. At some point in history, we’ll look back at this & wonder in surprise – Why did we value this stock so much? How could we?
4. Federal Reserve’s fight on inflation in nearing its end: The FOMC rates are now at 3.50% - 3.75% very quickly. As we stand today, the risks to employment market are higher vs risks to inflation. New jobs addition avg for last 12 months is appx. 50 K & that might be hugely overstated. Unemployment stays weak at 4.6% & Federal Reserve would not like to risk any further from here. Wage growth is also at 3,7% which is closer to the long term average of 3% or below.
5. US 10 year yield – New normal is 4%: The 10 year bond yield currently stands at 4.15% so there was hardly any change during 2025. However with 2 more rate cuts to do, this may settle down at 3.5% - 3.8% in 2026. This makes a new normal for the housing market that will have to get used to the 5% mortgage rates. #Fed is sitting on a lot of dry powder should the labor market weaken, subject to reasonable inflation control.
6. Geo-politics is likely to get better with Trump administration: With #Trump presidency US is more likely to reinforce the principles of “Munroe doctrine”. It would keep a total dominance on foreign affairs of the western hemisphere. It’s being called the “Donroe doctrine” now. Believe it or not, this is leading the world to a much stable and peaceful place. Middel east is already looking more settled now. Watch out for more.
7. Emerging markets shine finally - after a decade: #MSCI Emerging market index delivered an eye popping 30% returns in 2025. Consider this – the 10 year average returns of EM index is 3.5%. Will this drive passive investors finally back to diversify into EMs? On the margins – yes. But it would take another year of such performance for it to change directionally. In 2025, #SouthKorea with 80%, #Mexico 35%, #Taiwan 36%, #Brazil with 23% & #China with 11% returns in $ terms helped tilt the index high. EU markets like #UK & #Germany was impressive 18% USD returns. In conclusion – valuation matters. The markets with highest returns were at very cheap valuation. At some point, a catch up was due. And there is more to go still. We’ll keep track.
Happy Investing in 2026
Cheers
