The Change in Fed Leadership Could Support Stocks

Tom Lee expects another strong year for U.S. stocks in 2026.

The head of research at Fundstrat predicts that the S&P 500 will reach 7,700 points next year, extending the bull trend for a fourth consecutive year. This represents an increase of about 11.8% from Wednesday’s levels.

In a note to clients, Lee emphasized that after three consecutive years of gains over 20%, the market continues to move confidently upward. According to him, the large “wall of worries” that investors face actually supports the upward momentum.

In recent years, stocks have indeed navigated this “wall of worries.” Companies connected to artificial intelligence are leading the gains, despite ongoing concerns about persistent inflation and a weakening labor market.

This year, the S&P 500 has risen by about 17%. The communication services and technology sectors—the home of the so-called “Magnificent Seven”—are expected to post gains of 33% and 27%, respectively, in 2025. The index closed Wednesday at 6,886.68 points, surpassing Lee’s 2025 forecast of 6,600 points.

For 2026, Lee continues to favor the technology sector, particularly companies involved in AI and the crypto space. He is also positive on materials, energy, and financial services. Materials have lagged this year with a 5% gain, energy has added 7%, and financial companies have risen about 11.2%.

Lee also highlights another potential market-supporting factor for next year—the expected change in the Federal Reserve chair after Jerome Powell’s term ends in May. He believes the new chair is likely to follow a more “dovish” monetary policy, which would be positive for markets in the second half of the year.