Economic Outlook for 2026

The Roaring 2020s remains our base-case scenario. For 2026, we are raising our subjective odds of this prospect from 50% to 60%. We are less concerned about a meltup/meltdown scenario now, so we are lowering the odds of that from 30% to 20%. We are keeping our bearish scenario at 20%.

Economic Growth Projections

In our base-case scenario, real GDP should grow 3.0%-3.5% next year, following this year’s likely gain of 2.0%-2.5%. We expect the labor force to increase by only 0.5%, implying that productivity will rise by 2.5%-3.0% in 2026. Productivity-led growth should reduce unit labor cost inflation to 2.0% next year, bringing consumer price inflation down to 2.0% as well.

Figures and Projections

Figure 1 shows the projected real GDP growth, while Figure 2 illustrates the expected labor force and productivity growth. Figure 3 displays the projected unit labor cost inflation and consumer price inflation. We expect S&P 500 companies’ collective earnings per share to increase from $268 this year to $310 next year. By the end of next year, we expect the industry analysts’ consensus to be $350 for 2027, as shown in Figure 4. The forward P/E range by the end of next year should be 18-22, resulting in our target range for the S&P 500 of 6300-7700, as illustrated in Figure 5.

Reasons for Strong Economic Growth

We see several reasons why economic growth is likely to be strong, supporting our Roaring 2020s productivity story. Our year-end 2026 target for the S&P 500 assumes that the economy and earnings will remain resilient. Our odds of a severe correction or a bear market, triggered by either recession fears or an actual recession, remain low at 20%.

Unlocking More Insights

To access more market-moving insights, weekly video commentary, and a complete research archive, consider upgrading to a premium subscription. With this upgrade, you can unlock 5-8 QuickTakes each week, compared to 1-3 on the free version. You will also gain access to exclusive content, including weekly video commentary from Dr. Yardeni.

Conclusion

In conclusion, our economic outlook for 2026 is positive, with a base-case scenario of 3.0%-3.5% real GDP growth and a strong productivity-led growth story. We expect the S&P 500 to reach 6300-7700 by the end of next year, with a single-point estimate at the upper end of this range. While there are potential risks, our odds of a severe correction or bear market remain low, making 2026 an exciting year for investors.