2026 Is Poised For Even Bigger Gains Than Last Year

• AI demand characterized as 'insatiable' by AMD CEO Lisa Su, who projects her company could grow 35% annually for 3-5 years, with the AI data center market potentially reaching $1 trillion by 2030
• Core inflation (CPI) declined to 2.6% year-over-year from 3.3% earlier in 2025, supporting the Fed's three rate cuts last year and expectations for another cut in 2026
• Earnings growth forecasts remain strong with Q4 2025 projected at 7.9%, Q1 2026 at 11.8%, and Q2 2026 at 14.0%, demonstrating resilience despite tariff concerns
• Small-cap stocks are outperforming in early 2026 after lagging in the first half of 2025, benefiting from lower interest rates and tax provisions including 100% immediate expensing of capital expenditures

Market Summary: 2026 Poised for Continued Bull Market Gains

Market Performance:

Year-to-date 2026 gains show strong momentum: Dow +2.70%, S&P 500 +1.38%, Nasdaq +1.18%, with small-caps leading at Russell 2000 +7.89% and S&P 400 +6.07%. This follows 2025's third consecutive year of double-digit gains, with the S&P 500 up 16.4% after advancing 23.3% in 2024 and 24.2% in 2023.

Key Market Drivers:

*AI Revolution:* AMD CEO Lisa Su described AI demand as "insatiable," projecting 35% annual company growth over 3-5 years and forecasting the AI data center market could reach $1 trillion by 2030. NVIDIA CEO Jensen Huang characterized AI as "the most powerful technology force of our time."

*Inflation and Interest Rates:* Core CPI moderated to 2.6% year-over-year (down from 3.3%), while the Fed's preferred PCE index fell to 2.8% from 2.9%. Three rate cuts in 2025 have improved conditions, with another cut anticipated in 2026.

*Earnings Growth:* Q4 2025 earnings forecast at 7.9% growth, accelerating to 11.8% in Q1 2026 and 14.0% in Q2 2026, demonstrating strong fundamentals despite tariff concerns.

Sector Highlights:

Small-cap stocks are experiencing a renaissance, benefiting disproportionately from lower interest rates due to higher debt levels and improved tax provisions including 100% immediate expensing of capital expenditures.

Historical Context:

The analyst draws parallels to the 1995-1999 tech boom, which delivered five consecutive years of double-digit gains totaling 220% for the S&P 500, suggesting similar potential driven by AI transformation.