Outline:
In the realm of investing, there are no guarantees, except for the fact that nothing is guaranteed. Individuals who have been involved for 30 years or longer have developed a tendency to use broad statements instead of definitive ones, understanding that although history may echo, it does not always follow the same pattern.
A fundamental lesson I’ve gained during my three-decade investing journey is that stocks often decline when all investors are aligned in the same direction. They perform more strongly when there’s a consistent flow of individuals still on the opposite side, aiming to cross over.
What concerns me this year is that everyWall StreetAn analyst has shifted to the same side of the boat, which could be a significant issue as it implies there’s not much money remaining on the sidelines ready to invest in stocks.
Our own Charley Blaine surveyedthe top Wall Street research firms in December. The predictions differ, but they have one thing in common. Every single analyst anticipates theS&P 500to end 2026 in a better position than it began.
That’s different from last year, whenBlaine’s survey showedsome companies continued to have negative outlooks.
Stock market forecasts are predominantly optimistic
I have read numerous research reports, and one aspect that is notable this year is that most analysts highlight challenging trends during mid-term election years (read more here), all of them expect any turbulence to be temporary, with the S&P 500 achieving a fourth straight year of growth in 2026.
To be clear, that’s not a poor choice.
The middle years of the four-year presidential cycle have experienced the most significant intrayear declines, with an average drop of 18%. Nevertheless, the majority of the losses usually occur during the second and third quarters, after which stocks tend to recover and rise once the election period subsides.
Nevertheless, there are many years in which stocks ended the year with a decline.
2026, a midterm election year, is expected to be filled with challenges,bear market”action, and economic instability,” states Jeffrey Hirsch in the 2026 edition of the Stock Trader’s Almanac.
Since 1950, the typical S&P 500 return during mid-term years has been 4.6%, considerably lower than the 17.2% achieved in years before an election and the 8% seen during presidential election years. The performance has declined further since 1985.
In total, there have been nineteen mid-years during presidential cycles, andA 20% decline in the market has occurred six times, including a 33.8% decrease in 2002 and a 25.4% decline in 2022.
Those were distinctive days, but you understand the point: Stocks do not always provide returns, even when everyone assumes they will. However, Wall Street analysts continue to be strongly aligned with thebull market camp.
Out of the 21 analysts surveyed, 100% anticipate the S&P 500 will increase in 2026, with 10 of them predicting returns of more than 10%.
It’s not only Wall Street that is optimistic and fully committed. Each month, theAmerican Institute of Individual Investors(AAII) shows the percentage of respondents’ investments in stocks.
“At the end of December, their stock allocation was slightly above 70%,” stated a technical analyst.Helene Meisler on Pro.
Meisler notes that such high readings have happened only four times in the last 20 years. Each instance occurred roughly one year before a significant event.pullback, including in 2021 prior to the 2022 bear market decline and in December 2024, just before the nearly bear market drop last spring.
My perspective on actions investors can take at this moment
Stocks generally trend upward over time, but this growth isn’t consistent. They move in a winding path, often experiencing fluctuations that can cause concern for investors. This was evident last year, as the S&P 500 dropped almost 20% in the spring before rebounding more than 40% from April’s bottom to the end of the year.
Regrettably, no one sounds an alarm indicating market peaks or troughs, but there are indicators you can monitor to determine if stocks become overbought or oversold.
Pro’s Meisler has been analyzing financial markets as a technical expert since the 1980s, including time spent at Goldman Sachs. She monitors the ratio of rising stocks to falling ones over 10 and 30-day periods, the Daily Sentiment Index, and additional indicators to identify when stocks might be excessively high or low.
Related: Micron takes a major step as the supercycle intensifies
Those tools are most effective, yet, for active traders. Retail investors often find it challenging to time their entry and exit points, which makes a buy-and-hold strategy or minor adjustments more advisable.
Rather than responding to media hype in real time, the majority of investors are better off making small changes instead of frequently entering and exiting the stock market, trying to predict the perfect timing.
If you, like me, are worried that everyone is overly optimistic, small changes might involve adjusting the size of your portfolio holdings.
For instance, if your usual allocation is 10% of your portfolio and an investment has increased to 20%, think about trimming it back to 10% to generate some cash that you can place in a money market account while you observe whether stocks actually decline during their typical mid-year dip.
In the same way, if you purchased a stock that you no longer keep track of or if the reason you initially bought it is no longer relevant, think about whether it’s still the optimal holding in your investment portfolio. If it isn’t, selling might help lower your risk and free up some cash to purchase again later in the year during a market dip.
Related: 2026 plan unveiled by a 30-year industry expert