Wall Street strategist lays out simple game plan for 2026

Sam Stovall has been navigating stocks for a long time. Stovall is the Chief Investment Strategist at CFRA, and his stock market experience is rooted in over 30 years of tracking markets, dating back to his tenure as managing director and chief investment strategist at S&P Global and editor-in-chief at Argus Research, an independent investment research firm based in New York City.

Stovall correctly stayed bullish in 2025, saying stocks would likely head higher, not lower, despite ongoing worries over employment, tariffs, inflation, and the Fed. Despite a frightening 19% retreat in the spring, the S&P 500 rallied 16.4% in 2025 when all was said and done, validating his take.

The stock market's big move (it's posted three consecutive double-digit annual returns) has many investors wondering if a fourth year is likely. Many of the concerns over the economy remain in 2026, leading folks to wonder if now is a good time to book their winners and lock in their gains.

Stovall recently offered up his game plan for 2026, and he's generally bullish. In fact, he says that history suggests investors not only stay the course with the market, but also let their 2025 winners run.

Sam Stovall offers an upbeat market outlook for 2026

I recently wrote about how Goldman Sachs expects the S&P 500 to rally by 12% in 2026, driven by 12% S&P 500 earnings growth. Stovall paints a similarly bullish profit picture, estimating that S&P 500 profits will swell by 13.5% this year, leading to higher stock prices.

Stovall's outlook for 2026 includes:

• S&P 500 earnings projected to rise about 13.5%
• S&P 500 year-end target of 7,400 (up 7% at last check on Jan. 8, 2026)
• Continued support from easing monetary policy (a friendly Fed)
• Improving GDP growth and moderating inflation pressures
• A potential path toward trimmed valuations as earnings strengthen
  Source: CFRA

Stovall's S&P 500 target suggests we won't get a fourth consecutive year of double-digit returns for the benchmark index. However, returns aren't distributed evenly (as we all know), and some baskets will undoubtedly perform better than others.

After crunching the numbers historically, Stovall came away believing that last year's winners are best set up for another year of outsized returns.

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"After an up year, the S&P 500 gained an average of 7.3% in the following year, rising two out of every three times," noted Stovall in a note shared with TheStreet. "Therefore, since the S&P 500 gained nearly 18% year-to-date (YTD) through December 26, the strategy recommends letting the winners ride by owning an equal amount of the best three sectors or top 10 sub-industries for the coming year."

Stovall's advice to let winners win by sticking with the best-performing sectors in the prior year means investors might not want to give up on 2025's big winners, at least not yet.

Best-performing sectors in 2025:

• Communication Services: 32.7%
• Information Technology: 25.3%
• Industrials: 19.3%
  Source: CFRA "Let Your Winners Ride," Dec. 29, 2025, returns through Dec. 26, 2025

Concentrating on those three sectors largely means continuing to embrace technology. For perspective, the biggest stocks within Vanguard's Communication Services ETF (VOX) are Alphabet (GOOGL) and Meta Platforms (META). Meanwhile, the largest holdings in Vanguard's Information Technology ETF (VGT) are Nvidia (NVDA), Apple (AAPL), and Microsoft (MSFT).

"Since 1990, while the S&P 500 posted an average annual increase of 10.5%, the top/bottom sectors gained 13.2% and the top/bottom 10 sub-industries jumped 17.8%, with both beating the market 71% of the time," said Stovall.

The 10 top-performing industries in 2025:

• Gold: 184.2%
• Heavy Electrical Equipment: 101.7%
• Electronic Components: 95.1%
• Semiconductor Materials & Equipment: 91%
• Electronic Manufacturing Services: 63.1%
• Health Care Facilities: 53.8%
• Health Care Distributors: 50.9%
• Leisure Products: 47.7%
• Steel: 46.7%
• Semiconductors: 45.9%
  Source: CFRA "Let Your Winners Ride," Dec. 29, 2025, returns through Dec. 26, 2025

Trust but verify: Risks remain to stocks in 2026

I've often felt that it's a little silly to change your investments simply because the calendar flips to a New Year.

There are understandable quarter and year-end rebalancing moves that influence decisions every December, but generally speaking, moving from December 31 to January 1 doesn't flip a switch on winners and losers. It usually takes a catalyst to derail a market rally, in my experience.

Related: Goldman Sachs sends strong message on S&P 500 earnings outlook

That said, there's plenty of historical data suggesting that investors need to "trust but verify" continually in 2026. Mid-year election years can be more volatile than other years in the Presidential Election Cycle (I wrote about that previously here).

Historically, when White House and Congress are controlled by the same party, that party loses seats in the Senate and House during the midterm election, and worry over the impact of lost seats creates uncertainty that can weight down stocks.

"As a result of this uncertainty, the S&P 500 in [mid-term election years] since WWII recorded a paltry 3.8% annual price increase and rose in price only 55% of the time, compared with an average gain of nearly 11% and a 76% frequency of advance for the other three years in the cycle," pointed out Stovall.

Digging deeper into the data shows that mid-term years are the only year in the Presidential cycle to record average consecutive quarterly declines (second and third quarter).

Those summer declines are often stiffer than normal, too.

"The S&P 500 endured an average intra-year drawdown of 18% during MTEYs, which was more than five percentage points higher than the average for the other three years in the cycle."

Overall, that record is enough to make me a bit cautious as we push deeper into the first quarter. If evidence mounts that the market is rolling over, it could be wise to look at your overweights for opportunities to trim and raise some cash that can be used to buy back stocks into the teeth of a selloff later in the year.

"After the election, history reminds us (but does not guarantee) that with the uncertainty lifted, the S&P 500 recorded uninterrupted advances. From October 31 of MTEYs through October 31 of the following year, the S&P 500 gained an average of 16% and rose in price 100% of the time," said Stovall.

Related: Unemployment, Supreme Court surprises may shake stocks Friday