Mark and Elise Levy’s January Economic Update
Artificial intelligence (AI)–related companies, including the Magnificent Seven, are once again expected to drive the majority of earnings growth in the fourth quarter. Current estimates suggest that roughly 80% of the S&P 500’s projected 8% earnings growth is coming from the technology sector, even before including several major AI players such as Alphabet, Amazon, and Meta.
Technology sector earnings are expected to grow by more than 30% in Q4 once results are finalized, versus current consensus estimates of 25.8%. The six largest technology companies (the Mag Seven excluding Tesla) alone are projected to account for over 60% of total S&P 500 earnings growth, significantly outpacing the rest of the market.
Although earnings growth outside of these mega-cap technology companies has improved modestly, AI leaders are still expected to deliver the strongest growth over the next several quarters. This continues to support LPL Research’s preference for large-cap growth stocks, though a narrowing earnings gap in 2026 could allow market leadership to broaden.
Cyclical value stocks have performed relatively well in recent months as technology leadership has softened, and they may receive additional support from fiscal stimulus tied to the One Big Beautiful Bill Act (OBBBA). Industrials—one of the sectors on LPL's 2026 shopping list—fit squarely into this theme.
As always, we are paying closer attention to management guidance for upcoming quarters than to backward-looking results from late 2025. Overall, LPL expects management commentary to remain constructive, supported by steady economic growth, continued large-scale AI investment, and fiscal stimulus from the OBBBA. Lower tariffs and improved trade policy clarity are also positive tailwinds.
LPL Research currently expects GDP growth of approximately 2% in 2026, with slower growth in the first quarter followed by a pickup beginning in the second quarter as stimulus effects take hold. This level of growth, combined with inflation expectations that reflect ongoing pricing power, should be sufficient to drive mid- to high-single-digit revenue growth in 2026. Consensus expectations call for S&P 500 revenue growth of roughly 7% this year.
Markets will undoubtedly experience volatility in 2026 as investors react to changes in economic growth, policy developments, and scrutiny surrounding massive AI investments. However, LPL Research would not bet against corporate America continuing to deliver solid results through 2025 and 2026. Earnings growth should help limit the severity of market pullbacks and support high-single-digit returns this year. While annual returns that match long-term averages are rare, LPL believes mid-teens stock market appreciation is possible if AI adoption accelerates and delivers meaningful productivity gains.
Lastly, 1099 forms will start being sent out in the second half of February, for those preparing to file their taxes. Please contact Elise, Mark, or Rose if you have any questions.
- Mark and Elise
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