Bull Case Holds for 2026 – Lori Calvasina

Lori Calvasina, with 25+ years in equity strategy, recently raised her S&P 500 price target to 7,900 using a rolling 12-month forward methodology rather than a fixed year-end approach. She describes it as "not a terribly heroic forecast," noting it's based on the second-lowest of her five models and acknowledging upside risk. Her five models span sentiment, cross-asset analysis, valuation/earnings, a Fed model, and a GDP model. The Fed and cross-asset models are the most optimistic, projecting 13-14% returns implying targets of 8,300-8,400, while the GDP model is the most conservative at ~5.7%.

Sentiment rebounded sharply from deep bearishness in late March, when AAII Net Bulls hit roughly -21.9% — notable, but not as extreme as the GFC or 2022's -40% lows. Her contrarian sentiment model was sending a +15% forward return signal at those March lows. Sentiment has since recovered to near-neutral, and a shift into higher territory would dampen the model's bullish signal.

On earnings, Calvasina describes a "fast lane vs. slow lane" dynamic. AI-related sectors — Tech, Energy, and Materials — are showing above-S&P growth with rising 2026 estimates, while most other sectors remain flat. She argues top-down macro investors are too focused on geopolitical risks and incorrectly assume these will broadly drag U.S. earnings, while bottom-up stock pickers already understand that AI-driven companies are largely insulated.

The S&P 500 P/E sits around 23.6x, down sharply from October highs of 27-28x. While that compression is meaningful, the market never became truly cheap. A stress scenario — CPI at 3.8%, two rate hikes, 10-year yields at 5% — compresses the P/E further to 22.71x, and applying a 5% earnings haircut in a higher oil environment pushes fair value down to around 6,326.

Large US corporations have built commodity and supply chain buffers — some hedged through year-end, others for 6-12 months — that should insulate near-term results. The real concern is 2027, when those buffers run out and tariff pressures become harder to absorb. Drawing on the 2018-2019 tariff period as a parallel, companies can manage short-term pressures mid-year, but buffers erode over time as rising costs from oil, hedging, and inventory replenishment compound.

The labor market remains a key support, with keyword analysis of earnings transcripts showing layoff references remain very low and tech sector cuts appearing contained rather than systemic. Consumer behavior is shifting toward value, but no broad deterioration is evident yet.

Midterm elections are flagged as a historically significant risk factor — 2018 and 2022 both saw tough equity performance. Betting markets have recently shifted toward rising Republican sweep probability, a trend Calvasina suggests may be partly driving the market's recent recovery given investors view that outcome as more business-friendly.

Calvasina developed a "Tiers of Fear" framework to contextualise market drawdowns. Tier 1 covers garden-variety 5-10% pullbacks; Tier 2 covers 14-20% drops driven by recession fears that don't materialise; Tier 3 reflects actual recessions with median drawdowns of 27-33%; and Tier 4 covers catastrophic events like the GFC where roughly half of market value is lost. The recent Iran-related selloff at -9.1% peak-to-trough was a textbook Tier 1 event, with recession never seriously being priced in.

On positioning, she favours large cap growth and AI, where a broader AI basket is expected to show superior earnings growth versus the S&P 500 and MAG-7 in 2026. Small caps are emerging from an earnings recession but won't likely overtake the AI basket until 2027. Within value, financials and energy look selectively attractive, while materials offer more valuation appeal than tech, with metals and mining showing strong earnings revisions. Software looks cheap with solid revisions, while semiconductors are expensive but near peak revision trends.