The Dow Jones Industrial Average is expected to deliver steadier, more modest gains than the S&P 500 or Nasdaq. Forecasts generally call for high-single-digit to low-double-digit returns, reflecting its heavier exposure to cyclical and industrial companies.
Performance will depend on interest rates, manufacturing activity, global trade policy, and consumer spending. Unlike technology-focused indices, Dow components face more traditional pressures related to margins, pricing power, and cost control.
Which Key Factors Will Shape Markets in 2026?
Several key drivers will shape market outcomes in 2026.
Earnings growth remains central. Most bullish forecasts assume mid- to high-single-digit earnings expansion for the broader market, with technology-related sectors delivering stronger gains. After multiple expansion contributed meaningfully to recent returns, earnings are expected to shoulder more of the burden next year.
Federal Reserve policy is another critical variable. While further rate cuts are widely expected, the pace and magnitude remain uncertain. Leadership changes at the Fed in mid-2026 could add policy uncertainty, particularly if long-term Treasury yields approach levels that historically pressure equity valuations.
Inflation also remains a risk. Although price pressures have moderated, progress toward the Fed’s target has been uneven. Persistent labor tightness or higher import costs could complicate the policy outlook and weigh on valuations.
Geopolitical developments, including trade tensions and U.S. midterm elections, could introduce episodic volatility. Valuation concerns linger as well, with markets priced for strong execution. Any disappointment in earnings growth could prompt repricing.
What Are the Contrarian Risks?
More cautious observers point to declining buybacks, rising capital expenditures, and stretched valuations as warning signs. Reduced buyback activity removes a key source of equity demand, while heavy AI investment pressures near-term cash flow. If returns on these investments disappoint, equity multiples could come under pressure.
Are International Markets More Attractive?
After years of U.S. outperformance, several strategists argue that international equities may offer better value in 2026. Earnings growth outside the U.S. has improved, valuations remain lower, and select markets, particularly Japan, are benefiting from structural reforms and renewed domestic investment.
What Does This Mean for Investors?
The consensus view suggests another positive year for U.S. equities, but with returns likely closer to historical averages. Diversification appears increasingly important, both across sectors and geographies. Volatility is also expected to remain elevated, driven by shifting policy expectations and rotation within equity markets.
Fixed income may play a larger role as well. If rates continue to ease, high-quality bonds could provide income and diversification benefits alongside equities.
Bottom line: 2026 is shaping up as a year of opportunity tempered by realism. Markets may continue to rise, but leadership, return drivers, and risk profiles are likely to look very different from the years that preceded it.
More Information in our Economic Calendar.