Reasonable to be Optimistic About Markets in 2026, Says Rick Gardner

Rick Gardner, CIO of RGA Investments, breaks down his outlook heading into the new year. Garnder says that its reasonable for investors to be 'optimistic' about markets in 2026, expecting uncertainty around policy to die down. Gardner said that as tech trade narrows, there is opportunity for investors to diversify outside of the sector.

The post-Christmas session on Wall Street saw stocks fluctuating near their all-time highs as recent signs of economic resilience reinforced positive expectations for corporate profits.

While the S&P 500 barely budged amid a slowdown in transactions, the equity gauge posted its best week in a month. Most megacaps fell, but Nvidia Corp. rose on a licensing deal with artificial-intelligence startup Groq. Freeport-McMoRan Inc. paced gains in materials producers as gold hit a record.

Stocks waver near record.

Action in bonds was muted, with Treasuries set for a monthly loss, yet on pace for their best year since 2020 after three Federal Reserve rate cuts. The dollar churned at the end of its worst week since June.

In a relatively uneventful session, investors wondered whether stocks will be able to notch a “Santa Claus Rally”. The period typically encompasses the last five trading days of the year and the first two of the new one. This time around the window opened on Dec. 24.

One intriguing aspect of that pattern is the historical connection to future performance. A positive outcome has seen the S&P 500 deliver an average January gain of 1.4% and a 10.4% surge for the full year that follows, said Adam Turnquist at LPL Financial.

“In the short-term, I believe in Santa Claus,” said Steve Sosnick at Interactive Brokers. “I could easily see a run at 7,000 just because we’re already so close. There’s a reason ‘don’t short a dull tape’ applies.”

Sosnick notes there are a lot more people who have incentive to push their holdings to a high year-end close than there are those who have any particular interest in selling before then.

The S&P 500 hovered near 6,930. The yield on 10-year Treasuries was little changed at 4.13%.

Oil fell as investors assessed a step forward in Ukraine peace talks which could lead to a deal that allows more Russian oil into global markets. China vowed to prevent the yuan’s exchange rate from overshooting.

Despite the subdued action across stocks, bonds and currencies on Friday, gold, silver and platinum extended a historic advance.

The surge has been supported by elevated central-bank purchases, inflows to exchange-traded funds and Fed policy easing. Lower borrowing costs are a tailwind for precious metals, which don’t pay interest, and traders are betting on more rate cuts in 2026.

After the rally we’ve seen in the precious metals in the last couple of months, “traders in the space must be looking at the AI boom and thinking ‘hold my beer’,” said Bespoke Investment Group strategists.

While the S&P 500 has doubled — on a total return basis — since the October 2022 start of the bull market, all three precious metals have beaten the equity gauge in the span, they noted.

“If the current AI-driven bull market for stocks is a ‘bubble,’ then certainly what we’ve seen in precious metals lately qualifies as well,” Bespoke said. “Ironically, many bears that call the AI trade a speculative bubble also recommend increasing exposure to gold and other precious metals.”

“While I’ve been talking about a broadening out (and rotation to other areas) of this AI-led rally, I also want to reiterate that keeping Magnificent Seven, mega-cap tech and AI exposure is important,” said Tom Essaye at The Sevens Report.

The point here is that while bubble concerns are valid, this AI movement hasn’t yet reached levels that are similar to other “bubble bursts,” he said.

“Markets remain constructive, but selective,” said Craig Johnson at Piper Sandler. “The combination of improving breadth and easing inflation supports the call for a Santa Claus rally. Leadership continues to narrow toward AI, cyclicals, and select defensives.”

Seasonal tailwinds may help, but confirmation via breadth and participation is still required, he noted.

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