Last week saw the final meeting of the Federal Open Markets Committee (FOMC) of the year, and the market response was positive – the S&P 500 ended Dec. 10 up 0.8% after the meeting. A Friday decline, sparked once again by the possibility of an AI bubble, led to the S&P 500 closing out the week ever-so-slightly lower, down by 0.4%. The Nasdaq Composite saw a sharper decline, down 1.4%.
The Fed’s 25 bps interest-rate cut (the third and final cut of 2025) was widely anticipated, so investors were primarily reacting to the post-meeting press conference by Fed Chair Jerome Powell, as well as the FOMC’s Summary of Economic Projections (SEP). The positive market response to both was arguably due to less hawkishness than many had feared.
Chair Powell’s current term is scheduled to end in May. It seems inconceivable that President Trump will nominate anyone who isn’t dovish to replace Powell, and that forms just a part of the constructive outlook for 2026 that Fundstrat Head of Research Tom Lee presented at his live webinar on Thursday. “There is a Fed put in place,” he told viewers.
As Lee elaborated, in 2023 and 2024, the S&P 500 notched gains of 20% or more. If stocks rally through the end of the year to the extent that Lee anticipates, we will get a third. Such gains over the past three years have fueled skepticism that stocks can rise yet another year in 2026, but as Lee reminded investors of what Art Cashin said: “Remember, bull markets don’t die of old age, they get killed by the Fed.” The likelihood is that next year will feature “a Fed that doesn’t want the bull market to end” rather than one intent on emulating a matador, in Lee’s view.
Lee’s base-case thesis addresses valuations, historical precedents, sentiment, and likely outcomes for economic and Federal Reserve policies. Ultimately, he sees the likelihood of another up year of gains in 2026 – but not necessarily smooth sailing. With a growing wall of uncertainty, including the ultimate fate of Trump’s tariff policies at the Supreme Court, several periods of 2026 could be challenging for investors. Nevertheless, Lee’s analysis sees the likelihood of the S&P 500 ultimately ending 2026 at 7,700.
As for Head of Technical Strategy Mark Newton, he told us at our weekly research huddle that “I think that we will finish out the year on a good note.” He added, “my basic takeaway right now is that markets have improved in momentum and breadth in the last few weeks. It’s been a good rally since Nov. 20,” citing advances by industrials, financials, and small caps. “Those are all very big positives.” Newton is scheduled to present his 2026 outlook on Monday.
Chart of the Week
Despite a growing wall of worries, a multitude of factors has Fundstrat Head of Research Tom Lee seeing the likelihood of the S&P 500 ultimately ending 2026 at 7,700. Our Chart of the Week summarizes a possible path for 2026, in Lee’s view.
TESLA Part 1- Given all the requests about TSLA 2.71% I’ll shed some brief thoughts here. The near-term 3-5 day pattern is largely inconclusive, as the minor uptrend from November gave way to a minor break. this doesn’t have to lead down, but the near-term projection for SPX is in fact for a minor decline into next week before a rally. $435 is the area to watch on the downside for short-term traders. Under this would bring about a possible move to 419 or 413, but i don’t anticipate much downside. The key on the upside is $458.87 and getting above this would allow for a test (and likely breakout above) $474.07. For those trying to time breakouts, this is the single most important area to focus on, and I anticipate this will be exceeded into end of year. Getting above $474.07 should result in a rapid technical upside acceleration that should reach $560, $581 and then a “Beeline” up to the mid- $600’s. I’ll discuss this more when its time, but my timeline for a move up here is by the middle part of January into early February. The chart below highlights the daily short-term view only to identify the areas of interest for traders.
NVDA -3.27% pullback to undercut yesterday’s lows is a temporary negative and given its 8% weighting in ^SPX and could result in it weakening a bit further down to 173.68 or 172.81. I am not expecting an immediate break of November lows, but its pattern has certainly become a bit more “top-like” since the churning began in late July and that could be an eventual issue for SPX next year if this starts to weaken more meaningfully and break down to multi-month lows. At present, my ideal scenario calls for this to bottom into early next week and turn back higher into mid-to-late January. However, the weakening in momentum is a near-term concern and will need to be rectified to have more confidence of “Mag 7” being able to maintain strength and not break down much more than it has recently
Gold and Silver are continuing their recent strength, but Gold in particular is making a very bullish move today exceeding the prior high from late November. The SPDR Gold Shares ETF (GLD 0.54% ) exceeding $390 is a very constructive sign technically, arguing for some continued strength back to new highs. My target is $420
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