Barring extraordinary circumstances, the stock market is cruising towards a strong end to another positive year for investors.
This would be the third year of double-digit returns in a row for the S&P 500.
Two contrasting views for 2026 emerge:
There is a plethora of quantitative data showing that strong momentum regimes, supported by breadth thrust signals, have a high probability to last longer than most investors can imagine.
From this perspective the market would likely be steering towards another positive 9-12 months from here.
However, this clashes with the observation that midterm election years tend to be notoriously volatile and difficult: The average drawdown during the year is -17,5% and volatility tends to be even worse in populist periods.
These two disparate views can actually come together in the formation of a bubble top: Melt-up rallies paired with violent pullbacks are the norm.
If we are in the midst of an extraordinary, multi-decade market bubble, we should be prepared for plenty more irrational investor behavior to come.
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