Stocks have been on a tear this year (recent volatility notwithstanding).
In the first half of the year (which just ended a couple of days ago), the Dow finished up 8.85%, the S&P 500 was up 9.55%, and the tech-heavy Nasdaq was up 12.8%. Additionally, the small-cap Russell 2000 was up 21.9%, and the mid-cap S&P 400 was up 16.6%.
The resiliency of the economy has been on full display.
And with the Middle East peace deal finally coming together, and traffic in the Strait of Hormuz resuming (and sending oil prices lower), it’s about to get even better.
Add in the backdrop of soaring earnings, and it’s easy to see why the second half of the year could be even bigger than the first half.
For those who wished they would have taken better advantage of the recent rally, the good news is that it looks like there’s a lot more upside to go.
History Repeats Itself
Last year saw the S&P 500 gained 16.4%. That was on top of 2024’s 23.3%, and 2023’s 24.2%.
The historic AI tech boom has been leading the way.
And it’s reminiscent of the dot-com tech boom in 1995-1999 when the market surged by double-digits each year for 5 long, glorious years in a row, resulting in a 220% increase for the S&P, while plenty of individual stocks were up several hundred percent to several thousand percent.
I believe we could see the same thing again now.
And so does legendary trader Paul Tudor Jones. In a recent interview, he said the AI-driven bull market still has “another year or two to run,” and compared it to the late 1990’s tech boom.
That has been my sentiment all along, and comports with my expectation that we’ll see 5 years in a row of double-digit market gains, just like we did back then.
This year (2026), would be year 4, while 2027 would be year 5. But nobody says it has to stop there. With AI being touted as the most transformational tech breakthrough ever, it could very well last much longer.
Moreover, I think we can soar beyond ‘just’ a 20% gain.
Since 1988, only five times has the S&P had an annual gain of 30% or more. Just 5 times over the last 38 years.
But did you know that 2 of those 5 times happened in the 1995-1999 dot-com boom?
In 1995, it was up 37.6%. And in 1997 it was up 33.4%.
And the last time we saw a 30% gain was back in 2013.
We’re due for one, in my opinion.
Plus, with the AI boom being even bigger than the dot-com boom, driven by real earnings and real growth, if there ever was a reason to see a 30% gain, now is the time.
And AI will be one of the key drivers for stocks for years to come.
A recent comment underscoring the AI trade came from AMD CEO Lisa Su, who characterized the demand for AI as “insatiable,” and said her company alone could grow by 35% a year for the next 3-5 years because of that. In fact, she said the AI market is "faster than anything we've seen before.” And she predicted the AI data center market could grow to “$1 trillion” by 2030.
A resounding outlook for the scale of AI.
Here’s a few more, by NVIDIA CEO Jensen Huang:
“AI is the most powerful technology force of our time.”
“AI will revolutionize every industry, from healthcare to transportation.”
“We are at the beginning of a new computing era.”
And while it transforms the world as we know it, it also has the potential to transform one’s portfolio.
But in addition to the ongoing AI boom, there’s a myriad of other reasons to expect another year of big gains.
Continued . . .
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A Productivity Boom Is Underway Too
One of the latest Productivity and Costs report by the Bureau of Labor Statistics (BLS) showed nonfarm business productivity rising at a 2.8% annual rate in Q4’25, well above expectations for 1.9%. It also raised Q3’s rate up to 5.2% from the originally stated 4.9%, making it the strongest quarterly gain in 5 years.
What’s noteworthy is that productivity growth typically slows in the late stages of expansion as capacity tightens and incremental gains are harder to extract. But it accelerates at the beginning of a new growth phase when new technologies are adopted, and businesses unlock efficiencies that weren’t previously possible.
That’s why people are comparing it to the late 1990’s. Productivity jumped back then due to the technology gains from the internet boom.
And we could be seeing the same thing now, thanks to the technology gains from the AI boom.
The pattern is clear, as productivity jumps, broader economic expansion follows. And the current above-trend productivity gains are another marker for potentially big growth ahead – for the economy and the market.
The Earnings Outlook Is For Growth
Let’s also not forget that earnings are the main driver of stock prices.
And it’s pointing to strong growth.
Q1’26 earnings season wrapped up the other month, and the results were stellar with a 25.5% EPS growth rate.
Q2’26 earnings season is set to begin later this month, and is forecast to show a 22.3% EPS growth rate.
Q3’26 is forecast at 19.8%.
And Q4’26 is forecast at 21.6%.
Wow!
These numbers are nothing short of spectacular.
Once again, earnings are the key driver of stock prices.
And that’s why it looks like there’s a lot more upside to go for the market.
Small-Caps Are Also On The Rise
The bull market rally, now in its fourth year, is broadening.
Tech is still a big driver. And will be for years to come. But other industries are breaking out as well. And categories.
That includes small-caps.
While small-caps lagged the S&P in the first half of the year last year, they outperformed in the second half. And small-caps, along with mid-caps, are leading the indexes in 2026, so far.
In fact, as mentioned up top, in the first half of the year, the small-cap Russell 2000 was up 21.9%, with the mid-cap S&P 400 up 16.6%.
Last year’s rate cuts helped.
It’s true that all-sized borrowers see relief with lower interest rates. But since small-caps tend to have a larger proportion of debt than their bigger counterparts, and often borrow at less favorable terms, the rate cuts we’ve seen should have a sizable impact on small-caps.
And even though there’s now talk of a possible rate increase in 2026, nobody is expecting that to undo the 3 rate cuts we saw in 2025. Moreover, the forecast is for cuts to resume in 2027.
Additionally, the budget bill that passed last summer, which included additional tax provisions for corporate America, not the least of which is the 100% immediate expensing of capital expenditures, will also have a positive impact.
Especially since small-caps are typically in the earlier part of their growth cycle. Those tax provisions should allow them to spend/invest more money, accelerate their growth plans, and get the entire tax benefit in year one.
I think we’re on the cusp of a small-cap renaissance.
But note: that expensing, which should have a sizeable impact on smaller-cap companies, also benefits large-cap companies too – like Microsoft, Alphabet and Amazon, that have invested significant amounts in their AI and data center buildouts. And they too will get the immediate tax benefit of that, without having to wait 5, 7, 15, and in some cases 39 years.
And that too will help fuel the ongoing AI boom.
Stock Picking Secrets Of The Pros
So, how do you fully take advantage of the market right now?
By implementing tried and true methods that work to find the best stocks.
For example, did you know that stocks with a Zacks Rank #1 Strong Buy have beaten the market in 29 of the last 38 years (a 76% win ratio), with an average annual return of nearly 24% per year? That's more than 2 x the S&P, including 4 bear markets and 4 recessions. And consistently beating the market year after year can add up to a lot more than just two times the returns.
It also killed in 1995 with a 52.6% gain; 1996 with 40.9%; 1997 with 43.9%; 1998 with 19.5%; and 1999 with 45.9%. It was also up in 2000 by 14.3% while the S&P was down.
Did you also know that stocks in the top 50% of Zacks Ranked Industries outperform those in the bottom 50% by a factor of 2 to 1? There's a reason why they say that half of a stock's price movement can be attributed to the group that it's in. Because it's true!
Those two things will give any investor a huge probability of success and put you well on your way to beating the market.
But you’re not there yet, as those two items alone will only narrow down a field of 10,000 stocks to the top 100 or so. Way too many to trade at once.
So, the next step is to get that list down to a smaller, actionable list of stocks that you can buy.
And one of the best ways to do that is to see what stocks the pros, who use these methods, are picking.
Whether you’re a growth investor, or a value investor, prefer fast-paced momentum stocks, or mature dividend-paying income stocks, there are certain rules the experts follow to maximize their gains.
This applies to large-caps and small-caps, biotech and high-tech, ETFs, stocks under $10, stocks about to surprise, even options, and everything in between.
Regardless of which one fits your personal style of trade, just be sure you’re following proven profitable methods and strategies that work, from experts who have demonstrated their ability to beat the market.
The best part about these strategies and stock picks (aside from the returns), is that all of the hard work is done for you. There’s no guesswork involved. Just follow the experts and start confidently getting into better stocks on your very next trade.
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All the best,
Kevin
Kevin Matras serves as Executive Vice President of Zacks.com and is responsible for all of its leading products for individual investors. He invites you to download Zacks' just-released Ultimate Four Special Report before this weekend's deadline.
¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position. Access grants you a comprehensive list of all open and closed trades.
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