Earnings season kicks off next week and it’s expected to be crucial for stock pickers, potentially signaling a shift from the recent bull market. Along with earnings, inflation data will come into play. The stock market in 2026 is anticipated to differ from past trends. While many on Wall Street predict that the S&P 500 will see another double-digit increase in 2026, individual stock investors are starting to position themselves for possible outperformance this year. Earlier this week, the Dow Jones Industrial Average showed gains, but both the S&P 500 and Nasdaq Composite saw declines as investors shifted their focus away from tech stocks toward cyclical sectors, such as materials and energy. Notably, value stocks are currently outpacing growth stocks, and small-cap stocks are faring better than large ones. For investors, the upcoming earnings reports could present a profitable opportunity. Since the Federal Reserve started raising interest rates in 2022, responses to earnings results have been notably stronger, though Wells Fargo predicts that the gap between what the options market predicts versus S&P 500 earnings expectations will reach its widest point since 2017. Currently, the options market anticipates an average move of 5.1% following fourth-quarter earnings, while the S&P’s implied move is much lower at 3.9%. This volatility could lead to opportunities for those with differing views on stocks. Wells Fargo’s equity analyst, Ohsung Kwon, noted, “We expect another strong reaction this season. It’s an Alpha Opportunity for Stock Pickers.”
Eric Clark, head of investments at Accuvest Global Advisors, seeks volatile growth stocks that haven’t received much love in the market—essentially, high-quality companies with strong management and growth potential. He pointed out Netflix and Spotify as stocks to monitor in this earnings season. Both have dropped more than 4% and 7% since the start of the year and are over 30% off their 52-week highs. “If you enter the market when things look bleak, you’ll attract a whole new group of buyers once the tides turn,” Clark remarked. However, he’s not as optimistic about the earnings reactions in financial stocks, which may see an uptick post-rally. Major banks, including JPMorgan Chase, Citigroup, and Wells Fargo, are set to report next week, alongside several regional banks. Some remain hopeful about the banking sector’s prospects for 2026, aided by lower borrowing costs and fiscal stimulus. Mike Mayo from Wells Fargo Securities pointed out that it could be a situation of ‘buy on rumor, sell on news.’ “But after a potential ‘sell the news’ event, we will be buyers,” he added.
Next week also features inflation data, which is now even more relevant after Friday’s job report suggested a stable but weak labor market that would likely keep the Fed from making any sudden interest rate cuts. Recent futures data hints at a possible two-quarter point rate decline starting in June 2026. Beichen Lin from Russell Investments believes inflation will ease towards the Fed’s 2% target as tariffs diminish and housing and service costs stabilize. “We expect general inflation pressures to trend moderately as we head to 2026,” Lin commented. Still, it’s the forthcoming earnings season that might validate some inflated valuations companies currently hold. Wall Street generally expects U.S. companies to strengthen, particularly with tech leading the way, as sectors like industry and finance also improve. According to Wells Fargo’s Kwon, he anticipates companies to exceed expectations, while estimates are likely to remain unchanged. FactSet data suggests that the S&P 500’s earnings growth rate could hit 8.1%.
Overall, the week ahead is packed with important data and earnings announcements that could shape market sentiment moving forward.
