Wall Street Experts Predict Fed Will Drive 10-Percent Stock Gain In 2026

The Federal Reserve has been playing some politics recently with the drama surrounding interest rate cuts. Chairman Jerome Powell has made his ill-feelings toward President Trump clear, constantly claiming we are waiting to see some economic fallout from the tariffs. That has not happened, even months after those tariffs have taken effect. Yet, the fed has been very unwilling to cut rates even with data showing the cuts are fully justified.

But they have taken some action, instituting three rate cuts so far this year, with one more quarter-point cut happening at the most recent December meeting. Because of that, forecasters on Wall Street are predicting the Fed is going to drive a 10-percent stock gain in the coming year of 2026. However, there are still some hiccups that could happen, with the optimism needing some caution.

Economist Joel Griffith says the lowering of the rates could bring a boon to the market.

"That is based on the fact typically the stock market does end up higher about one year after the Federal Reserve begins making cuts," he says.

President Trump said of the most recent cut that it could have "been double" what it was, which might be a bit outlandish. A quarter point is about right and should help drive the economy in a more positive direction.

The big picture though comes when looking at the stock price to earnings ratio right now, which is at about 22 price-to-earnings ratio. That is one of the highest levels of the last thirty years. Compare that to other historic rate cuts times, in 2007, it was about 14, and in 2019, it was 17.

But this this round is a little different, not just because of the high number.

"We are starting with inflation elevated and they are cutting rates...jobs losses in some sectors are mounting, and the stock market is already richly valued," says Griffith. "I would say to exercise some caution."

It is hard to hold that caution when Americans have been beat down for multiple years by the disaster that was Bidenomics. People want their money back and want to feel free again.

But you need to keep watching, especially as worries over inflation continue ramping up.

"This is a far different situation than we have seen in other situations in which we have lowered rates...personally, I would not bet on such a large return in 2026," Griffith says.

He adds though if the inflation worries begin to subside, it could be a big year in the market.