By Peter Wechsler
President & Co-Founder, Franklin Retirement Solutions
[email protected]
Between the freezing temperatures, the snow, and the volatile stock market, most of us are glad to have January behind us. January was not fun. Jeremy and I did get to Orlando early in January for a conference and were lucky to experience great weather, as it averaged 80 degrees during the day and 70 at night. Tonight, it will hit 37 in Orlando. Oh well.
Many clients are asking me the same question: is the market getting ready for a big drop due to AI? Good question and honestly, who knows? My guess is that 2026 will be a pretty volatile year, so fasten your seat belts. From what I’m reading and hearing, even though it will likely be rocky, most analysts think we will end the year up. Will it be a great year? I doubt it. My guess is that, with some luck, we’ll see the S&P 500 grow by 10% or 11% by the end of the year.
Unless we have a black swan event—an unpredictable event with national or international significance like a war or act of terror—the market should climb on the back of a good economy. Here’s what I’m seeing:
- Tax Refunds: The IRS is estimating that, on average, people will see their refunds $1,000 higher than last year. This is due to the tax cuts last year and to the fact that the IRS did not lower the tax withholding tables to reflect changes in the law. This should put more money into the pockets of consumers who, guess what, will spend that money and boost the economy.
- Take Home Pay: This year, the IRS did change the withholding tables which means the average person will see a slightly higher take-home pay. What will happen to the extra take home pay? You guessed it. Consumers will have more money to spend, boosting the economy.
- Interest Rates: We have a new Fed chairman replacing Jerome Powell in the spring. Mr. Trump expects the new chair to lower interest rates. A few days ago, the President threatened if the new chair doesn’t lower rates, he will sue the chair. Go figure. If interest rates do go down, this should help the housing market recover and boost car sales, both big contributors to the economy.
- Housing Rebound Effects: With mortgage rates in the 6.1% to 6.2% range now, the housing market is starting to spring back to life. A rebounding housing market will boost spending in many parts of the economy including home remodeling, new appliances, new furniture, and things like timber, cement, drywall, and paint. You get the picture.
- 100% Bonus Depreciation: Part of the One Big Beautiful Bill Act signed last year reinstated and made permanent the 100% bonus depreciation in the year a fixed asset is purchased instead of having to depreciate the fixed asset over many years. This should lower corporate tax bills, giving these companies more money to invest in growing their businesses. We should start to see the effects on the economy this year.
So there you go, five reasons why the economy and vis-a vis the stock market should have a good year. Fasten your seat belts and keep your fingers (and toes) crossed.
Stay warm this weekend and enjoy the Super Bowl…
Peter