My base case for 2026 is a sharp but ultimately corrective bear market—approximately a 25% drawdown—followed by a meaningful recovery into year-end. Structurally, I expect a classic sequence: an early-year head fake, a multi-month liquidation phase, and a strong fourth-quarter rally.
2026 Forecast for the S&P 500 (green line):
■ Rally into ~Feb 17 toward 7,250–7,400; topping risk, minor low ~Mar 27.
■ Acceptance below 6,532 confirms top; 6,144 next, then risk to low-5,000s.
■ Cycle lows: Jul 24 (major low, sharp rally) and Oct 27 (3.5Y trough, cleaner divergent entry).
■ Downside ~5,200 (4,600–4,800 extreme), followed by Q4 rally to ~5,950.
■ Acceptance below 6,532 confirms top; 6,144 next, then risk to low-5,000s.
■ Cycle lows: Jul 24 (major low, sharp rally) and Oct 27 (3.5Y trough, cleaner divergent entry).
■ Downside ~5,200 (4,600–4,800 extreme), followed by Q4 rally to ~5,950.
■ The bullish advance should extend into mid-February, with the S&P 500 potentially pushing into the 7,250–7,400 zone. Up to approximately February 17, the trend should remain constructive, but I will be watching closely for topping signals and negative divergences as that window approaches. A minor corrective low is likely around March 27.
■ The first serious warning that the market has topped will be acceptance below 6,532. If that level gives way, the next downside objective is 6,144. A sustained break below 6,144 materially increases the probability of a deeper liquidation that carries the index into the low-5,000s.
■ I am focused on two potential windows for a major cycle low: July 24 and October 27, the latter aligning with a projected 3.5-year cycle trough. My expectation is that July produces an important low, followed by a sharp rally. However, the more attractive risk-adjusted opportunity may come in October, where a lower low accompanied by positive divergence would offer a cleaner and more durable entry.
■ In terms of price targets, my central downside objective is near 5,200. In an extreme scenario, the lower bound of the range would be 4,600–4,800, while the upper bound of the bear-market low region sits around 5,400–5,600. From there, I expect a powerful fourth-quarter rally, with a year-end target near 5,950.
■ The first serious warning that the market has topped will be acceptance below 6,532. If that level gives way, the next downside objective is 6,144. A sustained break below 6,144 materially increases the probability of a deeper liquidation that carries the index into the low-5,000s.
■ I am focused on two potential windows for a major cycle low: July 24 and October 27, the latter aligning with a projected 3.5-year cycle trough. My expectation is that July produces an important low, followed by a sharp rally. However, the more attractive risk-adjusted opportunity may come in October, where a lower low accompanied by positive divergence would offer a cleaner and more durable entry.
■ In terms of price targets, my central downside objective is near 5,200. In an extreme scenario, the lower bound of the range would be 4,600–4,800, while the upper bound of the bear-market low region sits around 5,400–5,600. From there, I expect a powerful fourth-quarter rally, with a year-end target near 5,950.
From a longer-term
perspective, the decennial pattern also supports this roadmap (see chart below). Year six
of the cycle is historically choppier. Across 23 prior observations, the
average profile shows a push higher into February, followed by a
volatile and corrective phase, and ultimately a year-end rally. As noted
in my 2025 forecast, year five is typically the strongest year of the
cycle; even after the spring 2025 crash, the market recovered
impressively, consistent with that tendency.
Dow Jones (monthly candles), 2023-2027.
» In my 2025 forecast, I noted that year five is typically the strongest year in the decennial cycle, and that even after the spring crash the market recovered impressively. Year six, by contrast, is usually much choppier. «
Dow Jones (daily bars), 2025-2027.
» The de-trended decennial pattern, shown in grey with matching years in orange,
conveys the same structure: early advance, decline, consolidation, and a year-end rally. «
The
same decennial pattern, shown on a de-trended basis above, reinforces
this view. In the comparative analysis, the de-trended data appear in
grey, with selected analog years highlighted in orange. The message is
consistent across both views: an early advance, a meaningful decline,
extended choppiness, and a decisive rally into year end.
Reference:
[Additional commentary and other asset forecasts will follow in the thread over the coming weeks.]
See also: