Wall Street Wrong Again? | January 2026 Market Update

Hello everybody. My name is Ty Bernicke and I’m going to be doing your January 2026 market update. And today I wanted to focus a little bit about a question that I frequently get towards the beginning of the year from people and that’s, hey, Ty, how’s the market going to perform in this next year?

Bloomberg’s Wall Street Forecast Study

And to shed light on my thoughts on making predictions about the stock market over one year periods, I thought it’d be interesting to share with you a study that Bloomberg has done the last handful of years, going back to 2021.

Essentially what Bloomberg has done is they’ve gathered around 20 people. These people are the top strategists at the top, some of the top investment companies in the nation. So that would be large investment banks. And what you’re when you think of Wall Street firms, companies like Goldman Sachs and JP Morgan, it also includes companies like Fidelity. And they again take the top strategists and basically say, what percentage do you think the S&P 500 is going to go up or down the next year?

And then they plot their guesses in this little chart that I’ve shared with you. So you can see back in 2021 this blue dot, the light blue dot represents the highest guess out of all the strategists. This square here, the blue square represents the median guesses. And then the little orange square represents the lowest forecast. And the green dot up here represents how the S&P 500 actually did.

Why Even Experts Get It Wrong

You can see the S&P 500 actually outperformed every single strategist guess by quite a bit. Nobody was above that. And nobody was really even close to it. The next year you can see all their guesses are plotted out again this year one person did guess the S&P 500. The lowest guess was that the S&P 500 was going to lose money.

The median was kind of single digits, but the stock market actually lost a bunch that year and was down 20% the next year. You can see that the highest guess was close to the S&P 500 index performance. And that was only one person, though the next year everybody was way off. Again, my point for sharing this with you is the top strategist at the top investment companies in the country can’t get this right from one year to the next.

And for that reason, I think it’s a fruitless endeavor for anybody to attempt to do that. Especially financial advisors.

What Actually Predicts Returns: The PE Ratio

With that said, I do think there is predictive value in something called the PE ratio, which is essentially a way of determining how expensive or inexpensive the market is. And I think it is somewhat indicative of how the markets will perform over the next five years, as shown by this scatter plot here.

So these are actual numbers, and subsequent five year returns. So the bottom shows the PE ratio, the average PE ratio over the last 30 years is 17 when the stock when the PE ratio of the S&P 500 index is higher than that. Usually it means the next five years aren’t going to be as good. And I said usually because that doesn’t always happen.

And when it’s lower than 17, that usually means on average that market returns are going to be better than average for the next five years. And so all of these dots that you see here represent that. So you can see when the PE ratio is above a 17. The stock market has measured the average return over the next five years is measured on this on the y axis over here you can see that. A lot of the next five year returns on average are around 0%.

Today our forward PE ratio is 22, which is quite a bit higher than 17, which would imply low single digit returns the next five years. And you can see when that PE ratio is low. There are several five year time horizons where the market averaged over 20% per year over a five year time horizon, as indicated by the dots in the scatter plot.

The Hidden Opportunities: Beyond the Top 10

So this probably looks not real optimistic, but I have something which I’d like to share with you that I think is relevant in today’s situation. Because if we simply exclude the top ten biggest companies in the S&P 500 index, which currently comprise over 40% of the S&P 500 index, the remaining 490 companies have a PE ratio of 19.2, which is not that much higher than the historical average of 17.

So not quite as alarming and more in line with average, more in line with an average PE ratio, which would imply closer to average returns.

Small-Cap, Mid-Cap, and International Opportunities

Furthermore, if we extend this conversation and look at smaller company U.S. stocks and middle size U.S. companies stocks, which most people are diversified into especially if you invest with us and most other firms do the same. Those companies PE ratios are much more in line with their historical averages, which would imply average returns for those asset classes. And I’ll take average returns for those asset classes every day for the rest of my life. One could argue that international stocks are a little bit more fairly valued than US stocks, too, although it’s always debatable.

Our Investment Philosophy at Bernicke Wealth Management

The reason I’m sharing this with you is because yes, there are pockets of the market that are concerning, but there’s pockets of the market that are also opportunistic, and we always will try to slide portfolios towards our highest conviction trades and places. The market that we think will do well and try to slide away from areas that we think are overvalued. We never ignore any major asset class, knowing that the markets are great at making fools of even the top strategists at the top investment companies in the country. But nonetheless, I wanted to share with you that, there is pockets of opportunity out there, staying diversified, keeping in touch with your advisor, if you have concerns is always a good practice and hopefully this sheds a little bit of extra light on kind of what we’re thinking over here at Bernicke Wealth Management.

And I wish you a great rest of your winter. Thank you very much.