Forecasters are cautiously optimistic about the stock market’s prospects for next year, with many anticipating continued growth. Strategy analysts at Morgan Stanley have identified three potential surprises that could disrupt this positive outlook for 2026, despite the bank’s forecast of a 13% increase in the S&P 500 driven by robust corporate earnings and a broad economic recovery.
In a communications note, the team led by Matthew Hornbach highlighted the potential for unexpected events, stating, “A year without surprises would be a surprise itself.” They outlined three specific scenarios that investors should watch for.
The first scenario involves a “jobless productivity boom.” According to Morgan Stanley, the U.S. economy could experience a surge in productivity without corresponding job growth, reminiscent of previous “jobless recoveries.” This dynamic could suppress wage growth and inflation, potentially supporting further cuts to the Federal Reserve’s interest rates. Hornbach suggested that core inflation could dip below 2%, providing the Fed ample room to reduce rates without the fear of triggering inflation. Notably, the Labor Department’s report showed a significant increase in labor productivity, which could support this scenario.
The second risk pertains to a possible shift in stock-bond market dynamics. Historically, stock prices tend to move inversely to bond prices; however, this correlation was disrupted in 2025, as both asset classes performed well simultaneously. The Morgan Stanley strategists pointed out that this “bad-news-is-good-news” environment could change if inflation aligns with the Fed’s target, restoring traditional investment behavior where investors seek safety in bonds when facing economic uncertainty. They noted that U.S. Treasuries might regain their status as reliable hedges against inflation under such circumstances.
Finally, the third surprise could involve a surge in commodity and energy prices. Morgan Stanley analysts speculated that several factors could lead to a spike in commodity markets, particularly in energy. They highlighted a potential decline in U.S. dollar attractiveness as interest rate cuts by the Fed could devalue the currency against foreign currencies, particularly as other central banks increase their rates. This dynamic, coupled with a rebound in Chinese economic activity—where demand for commodities remains high—could create upward pressure on energy prices. This anticipation is underscored by the recent performance of gold and other commodities, which have reached record highs due to tight supply and increased safe-haven demand.
As 2026 approaches, the interplay of these factors will remain critical to watch, as they could significantly influence the market’s trajectory moving forward. Investors and analysts alike will be keeping a close eye on how these surprises might play out in the evolving economic landscape.
