Summary
Investment Themes for 2026 The long-term trend in the U.S. stock market has been higher. In the 40-plus years since Ronald Reagan became president in 1980, stocks have turned in profitable performances almost 80% of the time. The average annual gain has been 13%. The year 2025 was another winner, as stocks extended a bull market that began in October 2022. The rally was ignited by falling inflation and has been fueled by lower interest rates, consistent economic growth, and impressive corporate profit growth rates. But despite the positive historical trends, there’s no guarantee that 2026 will be a bellringer as well. The start of the year may be difficult, as the Federal Reserve wrestles with stubborn inflation, the employment environment potentially weakens from a historically strong position, and geopolitical issues simmer. But earnings growth is expected to accelerate to a low-double-digit rate year over year during the first half. And should inflation resume its downward trek, giving the central bank more latitude to cut rates, the outlook for the second half should improve. We believe the stock market will take its cues from two sources in 2026. The first is the Fed, which has been in the driver’s seat for this second leg of the bull market ever since it pivoted on its rate outlook. The second will be earnings growth, which is already solid but could get a boost in 2026 from President Trump’s new policies. It is at least a modest comfort that the first year of the four-year presidential cycle has historically been good for equity returns. In all, our economic, earnings, and valuation models support a forecast of a positive year for stocks. We expect to see 1.) earnings grow 12%, after a 10% increase in 2025; 2.) interest rates continue to trend lower as the Fed continues to ease; and 3.) valuations that at least hold steady. Our target price for the S&P 500 is 7400, or about 8% above current levels. In a certain-to-be-unpredictable investing environment, we present our key themes we think will be important over the next 12 months. Note that some of these themes blur boundaries between sectors. That is by design. While we have specific sector recommendations (i.e., overweight Information Technology and Financial), we also think that some factors and themes supersede industry characteristics and can drive performance for diversified groups or portfolios of stocks. Theme 1: Upbeat Management Signals, Dividend Hikes This is among our most important themes and certainly is one that stretches across industries. At this stage of the economic and market cycles, Argus recommends that investors pay close attention to companies sending upbeat signals to the market by raising guidance and increasing dividends. We think consistent — and accelerated — dividend growth at a company gives three important signals to investors in the stock: 1.) the company’s balance sheet is strong enough to pay a dividend; 2.) management is mindful of shareholder returns, which include dividends; and 3.) the near-term outlook for the company is promising, even during an economic slowdown. We especially like companies that have grown their dividends at an average double-digit pace over the past five years. Stocks on our BUY list that meet this criteria include: American Express Co. (AXP), Walmart Inc. (WMT), TJX Cos. Inc. (TJX), Trane Technologies (TT), KLA Corp. (KLAC), and NextEra Energy (NEE). As previously stated, this theme touches a select group of stocks in almost every industry. We have built two investment products that leverage this theme: a UIT with our partner SmartTrust and a Separately Managed Account on several investment and model platforms. Theme 2: Upbeat Management Signals, Raising Guidance The analysis of management is one of the six points in our fundamental analytical rating framework and typically is the most subjective point. After all, there are plenty of rates to calculate for growth analysis, numerous ratios to calculate financial strength, and several multiples to calculate valuation. For management, our analysts get to know the CEOs, CFOs, and IR teams. Generally, we list the top executives in our reports and note when someone has left or joined a company. We also pay attention to the ‘guidance’ management teams offer for financial goals during the year. We track whether management falls short of, meets, or exceeds their guidance. Our analysts constantly look for companies that raise their guidance (increase their outlooks) during earnings season. Management’s ability to raise guidance can serve as a catalyst for strong returns in the quarters ahead. Companies that historically have consistently increased their financial expectations as the year progress include Cintas Corp. (CTAS), Parker-Hannifin (PH), GE Aerospace (GE), GE Vernova (GEV), and Taiwan Semiconductor (TSM). Theme 3: U.S. Competitive Advantage, Capital Raising Raising and allocating capital is one of the core competencies of the U.S. economy, along with innovative technology, aerospace and defense design and manufacturing, and pharmaceutical R&D. During the first half of 2025, global investors raised more than $19.0 billion on U.S. exchanges, well ahead of the Hong Kong exchange, where an estimated $14 billion was raised. In recent years, some emerging markets have climbed up the leaderboard, while some long-time leaders have regressed. A case in point on the positive side is India, which ranked second behind the U.S. in 2024, raising $19.9 billion. On the downside, the London Stock Exchange raised only $200 million for companies in 1H25, below the paltry $900 million raised in 2024. Why is the U.S. a consistent leader in raising and allocating funds? We think key factors include the historical democratic-capitalist political/economic framework that the country has adopted over many decades. Further, the strength of the U.S. financial and banking systems is unmatched, as the U.S. dollar remains the world’s currency of record. In addition, U.S. regulators demand a high degree of transparency from companies seeking to raise funds in the U.S., down to the details of publishing quarterly financial reports. While some may argue quarterly reporting detracts managers from long-term planning, there is little denying that the fundamental structure of the U.S. markets has resulted in a large, robust, and healthy banking and economic system. In our view, the capital raising and allocating sectors are well positioned for solid growth over the next few years. Top stocks in this area include Goldman Sachs & Co. (GS), JPMorgan Chase (JPM), Morgan Stanley (MS), Wells Fargo & Co. (WFC), Raymond James Financial (RJF), and Citigroup Inc. (C). Theme 4: Opportunities in Clean Energy The demand for clean energy in America is increasing as consumers and businesses prioritize sustainability and seek to reduce their carbon footprints. Government policies and incentives, along with growing environmental awareness, are driving substantial investments in renewable energy sources and technologies to meet this escalating need. United in their concern over greenhouse gas emissions stemming from fossil fuel power plants and car and truck tailpipes, 194 member states of the United Nations signed the Paris Agreement in 2015. This legally binding international treaty on climate change seeks to limit global warming to below 2.0, preferably 1.5 degrees Celsius, compared to pre-industrial levels. In the U.S., the Inflation Reduction Act (IRA) of 2022, enacted by the 117th Congress, called for the investment of $391 billion in programs and incentives relating to energy security and climate change. This included over $120 billion for renewable energy and grid energy storage, tax credits for wind power, solar power, and clean energy manufacturing, electric vehicle incentives, and other energy efficiency measures. Though the recently passed One Big Beautiful Bill changed some provisions previously available under the IRA, we expect economic factors ultimately will kick clean energy into a higher gear. Consider the fate of coal. As recently as 2001, coal generated more than 50% of the country’s electricity. That percentage is now only 19%, due to the relatively low efficiency of coal compared to other sources. Meanwhile, wind power as a percentage of U.S. electricity generation has grown from less than 1% in 1990 to 10% by 2022, according to the U.S. Energy Administration. The global solar power market is also large and growing quickly. It generated $235 billion in 2022 revenues, and is projected to rise at a compound annual growth rate of 7% to $293 billion in 2029. At Argus, we are building out a new clean energy industry of coverage. Initial stocks in this universe include Albemarle Corp. (ALB), AES Corp. (AES), First Solar Inc. (FSLR), Generac (GNRC), GE Vernova Inc. (GEV), Roper Technologies (ROP), Rio Tinto plc (RIO), Veralto (VLTO), and Xylem Corp. (XYL). Theme 5: Sustainable Impact Investing Sustainable Impact Investing, or ESG investing, is gaining traction not only with Argus’ clients but also with the global investment community. According to the Global Sustainable Investment Association, global assets under management in sustainable investment strategies had grown to $30 trillion in 2022, up from $23 trillion in 2016, despite a pullback of more than $8 trillion in investment in the U.S. in recent years. Europe and Japan are now the fastest-growing regions. Meanwhile, the UN Principles for Responsible Investing — to which Argus Research is a signatory — now represents more than 5,000 signatories, according to UNPRI.org. Indeed, the UN is targeting global asset growth in the strategy of another $10-$20 trillion in 2024-2027, as outlined in its recent PRI Strategy Plan. As assets have flowed in over the past 40 years, Sustainable Impact Investing has evolved. The discipline, originally known as Socially Responsible Investing, focused at first on excluding companies that conducted business in South Africa or participated in industries such as tobacco, alcohol, and firearms. In time, the list of industries to avoid increased to include soft drinks, fast food, and oil and gas, among numerous others. Performance of these initial strategies lagged, and the approach has been modified. Now, instead of merely identifying industries to avoid, the discipline promotes ‘sustainable’ business practices across all industries that can have an ‘impact’ on global issues such as the climate, hunger, poverty, disease, shelter, and workers’ rights. Twice a year, we screen the companies in the Argus universe of coverage against sustainable impact criteria established by JUST Capital Inc. We have designed a portfolio based on this investment theme, in conjunction with UIT partner SmartTrust, and as a separately managed account. Stocks that score well on the sustainable impact criteria and are featured in our portfolio include: Ecolab (ECL), T Mobile US Inc. (TMUS), S&P Global Inc. (SPGI), Travelers Co. (TRV), Deere & Co. (DE) and Hewlett-Packard Enterprise (HPE). Theme 6: U.S. Competitive Advantage, Aerospace and Defense Aerospace and Defense design and manufacturing is another of the core competencies of the U.S. economy. In our view, the sector is positioned for solid growth over the next few years. Recent defense spending data for 2024 shows that the United States, China, and Russia are the top three spenders globally, with the U.S. spending nearly $1 trillion. Global military expenditure reached a record high of over $2.7 trillion in 2024. Looking ahead, forecasts call for the industry to grow at a CAGR of 6% through 2028. Drilling down, the recovering global airline industry bodes well for commercial aerospace demand over the next several years. Airline passenger levels and airline revenues are once again growing at a healthy pace, and with international markets reopened, we believe the industry will be able to recover a substantial amount of its pre-COVID-19 revenues and profitability into 2027. We also expect solid military spending over the next few years, as U.S. spending accounts for nearly 40% of all global military spending. According to the U.S. Bureau of Economic Analysis, annualized federal spending on national defense was running at an $871 billion rate in 2Q25. That’s up 6% year over year. On top of the country’s typical strong commitment to defense spending, the budget has been influenced by the ongoing Russian invasion of Ukraine, the bombing in Iran, rising inflation, and other factors. The current geopolitical environment should keep this type of spending high for some time to come. Stocks that we think are positioned to take advantage of the trend include General Dynamics (GD), Lockheed Martin Corp. (LMT), RTX Corp. (RTX), L3Harris Technologies (LHX), and Leidos Corp. (LDOS). Theme 7: U.S. Competitive Advantage, Pharmaceutical R&D Pharmaceutical and biotech drug development is another one of the core competencies of the U.S. economy. The United States is the undisputed global leader in pharmaceutical and biotech drug development, a position solidified by financial commitment and innovation output. U.S. R&D expenditure in the biopharmaceutical sector is massive, with U.S. companies alone investing over $104 billion in 2024 and contributing approximately 55% of the worldwide total R&D spending in 2023. This dwarfs the investment levels of other nations and regions, such as Europe, which accounted for 22% of global R&D expenditure. This robust investment translates directly into innovation leadership; for instance, the U.S. Food and Drug Administration approved 105 new drugs in 2023-2024, and over a five-year period (2020-2024), there were 64 more novel active substances launched in the U.S. than in the top four EU countries and the UK combined. The U.S. market, accounting for nearly half of global pharmaceutical sales, serves as an attractive launch market, ensuring that more than half of all new drugs are launched there first, with an average lag of about one year before they appear in other major OECD markets. This combination of immense R&D spending, a high rate of novel drug approvals, and market dominance firmly positions the United States at the forefront of global pharmaceutical and biotech innovation. Leading pharmaceutical and biotech stocks in the Argus universe of coverage include AbbVie Inc. (ABBV), Amgen Inc. (AMGN), Eli Lilly & Co. (LLY), Merck & Co. (MRK), Teva Pharmaceuticals (TEVA), and Vertex Pharmaceuticals (VRTX). Theme 8: Onshoring and Supply Chain The U.S. operates one of the most advanced and robust supply chains globally, particularly in managing domestic freight volume and technological advances. The domestic highway system and public roads span over 4 million miles, providing comprehensive coverage for truck transport, which accounts for the largest share of U.S. domestic freight movement by value and weight for short-haul trips. The U.S. also has the world’s largest and most cost-efficient freight rail system, running on nearly 140,000 route miles. Unlike most state-owned foreign railroads that prioritize passenger service, the U.S. network is largely private, allowing for billions in private capital investment to focus on freight efficiency. This system moves significantly more freight per person per year than in the European Union or J