So LPL Financial just dropped their 2026 market outlook, and surprise surprise – they think the S&P 500 is going up. Revolutionary stuff, right? But before you roll your eyes, their prediction is actually pretty reasonable: they’re calling for the index to hit somewhere between 7,300 and 7,400 by the end of 2026.
That’s about a 7-8% gain, which in today’s market feels almost… modest? Remember when we used to get excited about 10% annual returns? Those were simpler times.
The AI Money Train Keeps Rolling
Here’s where it gets interesting. LPL’s Chief Equity Strategist Jeffrey Buchbinder (great name for a finance guy, by the way) thinks the biggest driver will be – drumroll please – artificial intelligence. Shocking, I know.
But the numbers are actually wild. The big five tech companies (Alphabet, Amazon, Meta, Microsoft, and Oracle) are expected to spend around $400 billion on AI infrastructure in 2025. In 2026? They’re cranking that up to $520 billion. That’s a 30% increase and represents 1.6% of the entire U.S. economy.
As Buchbinder puts it: “Nothing is bigger than AI right now and that is very unlikely to change anytime soon.” Translation: the robots are expensive, but they’re paying the bills.
The Fed’s Still Your Friend
The other tailwind? The Federal Reserve’s rate-cutting cycle. Historically, when the Fed cuts rates and we’re not in a recession, the S&P 500 averages an 18% return over the next 12 months. Not too shabby.
LPL sees these as “luxury” rate cuts rather than “emergency” ones – basically the Fed saying “hey, things are going well, let’s make borrowing a bit cheaper” rather than “OH GOD THE ECONOMY IS ON FIRE.”
But Wait, There’s More (Risks)
Of course, it’s not all sunshine and AI-powered rainbows. The usual suspects could mess things up: AI disappointment (what if ChatGPT-7 is just okay?), rising long-term interest rates, trade wars, and general geopolitical chaos.
Plus, valuations are already pretty spicy. The S&P 500 is trading at 22 times earnings, which isn’t exactly bargain-basement pricing. LPL thinks earnings growth, not higher valuations, will have to do the heavy lifting.
The Upside and Downside
If AI productivity gains really take off, LPL thinks the S&P 500 could hit 7,800 (25% chance). If recession fears creep in, we could see a drop to 6,200-6,300 (15% chance).
Their advice? Stay the course but “look for pullbacks to selectively increase equity exposures.” In other words, buy the dips – the most timeless investment advice ever.
So there you have it: LPL’s betting on AI spending, Fed easing, and corporate America’s ability to keep growing earnings. It’s not the most exciting prediction, but in a world of market volatility, boring might just be beautiful.