US Stocks Poised for a Historic Third-Straight Year of Stellar Gains

The Rally No One Saw Coming—Again

On the floor of the New York Stock Exchange, trader Maria Alvarez glanced at the closing bell and did something she hadn’t done since 2021: she let out a long, audible sigh of relief. For the third December in a row, the S&P 500 had notched a double-digit advance, a feat last achieved during the go-go years of the late 1990s. “We keep waiting for the music to stop,” she laughed, “but the band just keeps playing louder.”

How We Got Here

It started with a whisper in late 2022. Inflation was cooling faster than feared, consumers were still spending, and a handful of mega-cap tech firms were quietly pouring billions into something called generative AI. By the spring of 2023, the whisper became a roar. Nvidia’s blowout quarter in May lit the fuse; semiconductor, cloud and cybersecurity names followed in lockstep. Each earnings season since has delivered the same refrain: guidance raised, cash returned, buybacks accelerated.

“We’re in the early innings of an AI-powered productivity boom that could rival the personal-computer wave of the 1980s,” said Lisa Park, chief strategist at Atlas Capital. “Markets are pricing in not just hype, but measurable margin expansion.”

The Numbers Behind the Run

• S&P 500: +26% year-to-date, pushing three-year cumulative gains to 58%.
• Nasdaq 100: +47%, lifted by a 180% surge in the “Magnificent Seven.”
• Dow Jones: a more modest but respectable +16%, underscoring the rally’s breadth.

Equity mutual-fund flows have turned positive for the first time since 2017, with retail investors pouring $38 billion into U.S. stock funds in November alone, according to Refinitiv Lipper data.

What Could Possibly Go Wrong?

Veterans warn that trees don’t grow to the sky. Valuations are stretched—forward price-to-earnings on the S&P now sit at 20.6×, a 28% premium to the 20-year average. Geopolitical flashpoints from the Taiwan Strait to the Red Sea could disrupt supply chains and spike energy prices. And the Federal Reserve, while hinting at rate cuts in 2024, has made clear it will not hesitate to tighten again if inflation re-accelerates.

Yet sentiment surveys show the lowest cash allocations among fund managers since 2007, a contrarian red flag that typically precedes pullbacks. “The market has a habit of humbling the loudest choir,” cautioned David Rosenberg, founder of Rosenberg Research.

2026 Vision: AI Everywhere, Even in Your Portfolio

Wall Street’s latest round of strategist notes reads like science fiction: AI-driven drug discovery, autonomous freight networks, fully automated customer-service call centers. Morgan Stanley sees S&P earnings cresting $320 per share by 2026, up from an estimated $220 this year, assuming corporate AI adoption reaches 60%.

Small-cap benchmarks, left behind in 2023, are expected to catch up as lower borrowing costs feed through to balance-sheet-heavy businesses. “The second derivative of this cycle will be the democratization of AI tools to Main Street,” said Elena Vance, tech sector analyst at boutique research firm Cypress Insights. “That’s where the forgotten Russell 2000 names could shine.”

Main Street Joins the Party

Visit any suburban coffee shop and you’re likely to overhear talk of “buying the dip” or “loading up on QQQ.” Robinhood’s monthly active users have climbed back to 12.2 million, while Fidelity reports median 401(k) balances up 24% from 2022 lows. The phenomenon has even birthed a new verb among Gen-Z investors: to “Vanguard-and-chill.”

The Takeaway

For now, gravity remains on vacation. Earnings are rising, consumers are employed, and artificial intelligence has given corporate America a fresh narrative to chase. Whether the rally extends into a fourth year will hinge on the oldest of market variables: interest rates, valuations and the unforeseen shock that, by definition, nobody has priced in yet.

Back on the NYSE floor, Maria Alvarez pocketed her phone and headed for the subway. “I’ve learned never to say ‘this time is different,’” she said. “But until the data turns, I’m not fighting the tape.”