Has the Market Hit Its Peak? What Comes Next for Stocks in 2026
On January 2, 2020, I made the most prescient call of my 15-year career at Stansberry Research...
At the time, stocks were regularly hitting new all-time highs, and many investors were convinced nothing could stop the mega-bull market. That made it a great time to ponder the unthinkable... like something stopping the bull dead in its tracks. To help me get in the right frame of mind, I read President Herbert Hoover's diary of the Great Depression.
I didn't sleep well the next few nights.
You see, nearly a century ago, on the eve of the world's greatest financial calamity, investors were ignoring disturbing economic realities. As I put the pieces together and started thinking about the current situation, it suddenly became plain-as-day obvious that investors were once again making the same terrible mistake. I published my thoughts and findings in the first Digest of 2020.
Little did I know, the next "unthinkable" event was just a few weeks away... On February 11, 2020, the World Health Organization ("WHO") officially named the disease that would become a worldwide nemesis "COVID-19." Three weeks later, on March 13, the Trump administration declared a national emergency.
In response to the growing crisis, two days later (March 15), the U.S. Federal Reserve slashed its federal-funds target rate almost to zero. The Fed also announced a $700 billion capital infusion into the bond market. A week later, the S&P 500 Index finally bottomed on March 23, having declined an astounding 35% in just over a month.
Why Stocks May Have Entered the First Phase of a Major Pullback
I'm not predicting another global pandemic. But I do believe the top for the equity bull market that's been raging for years is now in.
Bonds and gold have been warning us for months: Employment is weak and inflation persists. Both are notoriously bad for the economy. They also stunt revenue growth and profits for individual companies.
So equity investors should have been terrified. Instead, they brushed these concerns aside... They kept buying. They pushed stock prices higher than ever, implying confidence that revenue and profits would keep growing. Instead of risk, they saw opportunity... Just like they did in the months leading up to the Great Depression, and again in 2019.
That's over. Equity investors have finally come to their senses – at least for now.
The S&P 500 fell 1.6% in the first week of November. We saw a brief bounce over the next couple days, but then the sell-off resumed. Since the all-time high on October 29, the S&P 500 has been down as much as 5%.
Select Value Opportunities, the service I publish exclusively for Stansberry Alliance members, monitors 100 of the market's leading stocks. The list includes many companies that you know, like iPhone maker Apple (AAPL), entertainment giant Disney (DIS), AI chip designer Nvidia (NVDA), and leading retailer Walmart (WMT).
Each day financial markets are open, we track the number of stocks in this database that are ranked undervalued and overvalued. Normally, more stocks are undervalued than overvalued. But the opposite has been true for most of the past two years, as extremely optimistic investors continued pushing stocks to new highs.
By monitoring the number of under- and overvalued stocks each day, we can pinpoint shifts in sentiment. That happened on October 29. Ever since, there have been more stocks ranked undervalued than overvalued, a sign that investors are lowering their expectations and becoming less optimistic.
There are three reasons they're finally getting religion...
- Continued deterioration in employment data
- Early signs of financial distress
- A reversal of the wealth effect
Let's look closer at each of them, beginning with...
No. 1: Employment Data Shows the Labor Market Is Weakening
On November 6, workforce-analytics firm Revelio Labs reported that the U.S. economy lost 9,100 jobs from September to October. Going back to January 2021, there has only been a month-over-month decline one other time. The other occurrence was this past May, when employment declined by 15,400 jobs following the Trump administration's April tariff announcement.
Also on November 6, Challenger, Gray & Christmas released its October jobs report. It was likewise alarming... U.S. employers announced nearly three times as many job cuts last month as there were in the same period last year (153,074 cuts last month versus 55,597 cuts in October 2024).
Year to date, employers have fired nearly 1.1 million workers, a 65% increase from 2024. Prominent companies announcing big workforce cuts include Amazon (AMZN), IBM (IBM), Microsoft (MSFT), Target (TGT), Verizon Communications (VZ), and United Parcel Service (UPS).
Investors have continued getting bad employment news... On November 11, estimates from leading payrolls processor Automatic Data Processing (ADP) confirmed the private sector lost 11,250 jobs per week for the four-week period ending October 25. Then a week later, ADP reported U.S. companies shed another 2,500 jobs per week, on average, for the four weeks ending November 1.
On November 14, the Wall Street Journal reported the employment situation for next year's graduates looks even worse than it currently is, as more people vie for a smaller pool of jobs... There are 16% fewer postings on early-career job search platform Handshake now than this time last year. Meanwhile, applications for those jobs are up 26% in the same time frame.
Finally, on November 20, the Bureau of Labor Statistics announced that the unemployment rate continues to tick higher, from 4.2% in July, to 4.3% in August, and to 4.4% in September. Those losing jobs are having difficulty finding new ones, so continuing claims for unemployment are at a four-year high.
Continued weakness in the labor market is now causing another problem...
No. 2: Financial Distress Is Growing Across U.S. Households
On November 12, Bloomberg reported that more Americans than ever are falling behind on their car payments... According to data from Fitch Ratings, 6.7% of subprime borrowers were at least 60 days past due in October, the highest delinquency rate since 1994.
Then, on November 13, CNBC reported that foreclosure filings in October rose for the eighth consecutive month year over year ("YOY").
We expect foreclosure and delinquency rates to continue trending higher as long as employment remains weak. That will be a growing problem for the financial services sector.
Finally, there's a third reason investors are reassessing their expectations for stocks...
No. 3: The Wealth Effect Is Reversing and Threatening Consumer Spending
When consumers experience an increase in the value of their assets, their confidence rises. So does their spending.
After investors concluded in April that tariffs wouldn't be as bad as initially expected, stocks ripped higher, taking most 401(k)s and other investment accounts along for the ride.
The SPDR S&P 500 Fund (SPY) is up 40% since then. The tech-heavy Invesco QQQ Trust (QQQ) has done even better, rising more than 50%. And select stocks, particularly those with exposure to the AI boom like Nvidia, have doubled since April.
The bottom line is, stock investors are feeling wealthier these days. The University of Michigan's preliminary Consumer Sentiment survey proves it... On November 7, its Index of Consumer Sentiment slumped 6% month over month and 30% YOY to 50.3. However, sentiment among respondents with the largest stock holdings improved, due to ongoing stock market strength.
Michael Pearce, deputy chief U.S. economist at Oxford Economics, estimates the top 20% of households by income are responsible for about 40% of consumer spending. These are the same folks with large stock holdings. So it made sense that the National Retail Federation recently predicted the first $1 trillion holiday shopping season this year.
But now, with stocks suddenly shaky and the wealth effect reversing, that ebullient holiday sales outlook is in doubt.
If consumers – especially the wealthiest ones – pull back their spending, it'll create a negative feedback loop where lower spending harms the economy and pushes stocks lower, further unwinding the wealth effect.
In summary, for those struggling to make ends meet, a deteriorating labor market will result in rising loan delinquencies and foreclosures. A reversal in the wealth effect will also cause wealthier consumers to rein in spending. All three risks are finally on the radar of equity investors. Meanwhile, there's another factor preparing to exert significant influence on stocks...
How the 2026 Election Could Influence the Stock Market
If you're tired of the divisive political atmosphere, I've got some bad news... The next U.S. election year starts in less than 45 days.
Behind the scenes, incumbents and their opponents are already revving up their campaign machines. This is particularly true in Arkansas, North Carolina, and Texas, where the first round of primaries is just four months away (March 3, 2026).
In a little less than a year from now –342 days to be exact – the midterm general election will be held on November 3, 2026. All 435 seats in the U.S. House of Representatives, plus another 33 of the 100 U.S. Senate's seats, will be contested.
Republicans will likely hold the Senate. The problem is the House, where 17 Republican districts look vulnerable and the current majority is just five seats (219 to 214 with two vacancies).
Only twice since 1940 has the party holding the presidency gained seats in the House of Representatives during a midterm election. The first was in 1998, when Bill Clinton was president. The second was four years later in 2002, when George W. Bush held the nation's highest office.
These historical anomalies share something important in common... Both Clinton and Bush enjoyed strong public approval ratings as their midterm general elections approached (66% for Clinton, 63% for Bush). The takeaway is that a popular president extends his party's power during midterm elections.
This is bad news for President Donald Trump... As of October 1 (the latest data available), just 41% of the public approved of the job he was doing. That's similar to his popularity in the days leading up to his first midterm election in 2018, when Republicans lost 40 House seats.
So history is not on the side of Republicans for 2026. But Trump cannot afford to lose the Republican majorities in either the House or the Senate. Doing so would jeopardize his legislative agenda for the next two years of his final term.
To maintain the majority, Trump must dramatically boost his approval ratings and ride that rising tide of public support to victory next November, just like Clinton and Bush did.
Ultimately, this means he'll fight a declining stock market and flagging wealth effect with every tool at his disposal. Trump has reportedly mulled sending Americans checks of $2,000 or more. He's also considering a reduction in tariffs on certain everyday products, like coffee and bananas.
We expect to hear more of these stories as the midterms get closer, and for market volatility to rise as a result. But in the end, we don't expect it to matter.
Here's why...
What Stock Market Investors Should Prepare for in 2026
My decades of experience tell me we should expect the stock market to make significant cycle lows every 12 months or so. It should then bottom out about every four years... like it last did in October 2022.
This year's significant low came in April and coincided with Trump's tariff announcement. As noted earlier, investors quickly concluded that tariffs wouldn't be as bad as they initially feared. And that sentiment pushed stocks to new highs. But the market's strong negative reaction to the three risks noted earlier is now signaling a potential reversal – the first one since the April low.
The negative price action that began earlier this month triggered weekly swing highs for the two most important equity indexes – the S&P 500 and Nasdaq 100 – for the week ending November 7. This means both indexes failed to make a new high compared with the previous week and have moved even lower than the prior week's low.
If these indexes fail to exceed the all-time highs established on October 29 (6,920.34 for the S&P 500 and 26,182.10 for the Nasdaq 100), and instead push lower, then it becomes increasingly likely that the top is in... and that a "1-2-3" topping out pattern has begun.
Here's a brief summary of how a 1-2-3 top forms... Investors shift from buying to selling, causing stocks to fall from an all-time high. (See Point 1 below.) Next, stocks find an intermediate bottom (marked with Point 2). Stocks then bounce and re-test the high (Point 1).
If they fail to make a new high (Point 3) and decline below Point 2, a major market reversal is likely underway. That's exactly what happened in the Nasdaq 100 from 2007 to 2008. Take a look...
If the latest Point 1 is the October 29 all-time high, and stocks continue grinding lower, we expect Point 2 to coincide with the next significant cycle low. Ideally, that's due around April 2026.
Following a bounce to Point 3, should stocks then turn down again below Point 2, confirming the 1-2-3 topping pattern, we expect the next major (four-year) low to occur around October 2026 – just before the midterm elections.
This is the market setup we're now monitoring, and we'll update you on it in our next essay, which you can expect in late January or early February.
In sum, you've been warned... A major top could be in. That means stocks could decline precipitously toward the major cycle low we expect about a year from now.
Regards,
Mike Barrett
Editor's note: A strange change is coming to the stock market – and it's about to have dramatic consequences for anyone above the age of 50.
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