US Stock Market Forecast: S&P 500 at 6,834 and Nasdaq 23,307 as AI Gains Clash With 2026 Warning Signals

US Stock Market Weekly Scorecard: Indices, Winners and Laggards

Index Performance and Market Tone

The final full trading week of 2025 closed with large caps still in control and clear signs of late-cycle fatigue under the surface. The S&P 500 (^GSPC) finished at 6,834.50, up 0.9% on the day and roughly 16% year to date, keeping the index on track for a third consecutive year of double-digit gains. The Nasdaq Composite (COMP) ended at 23,307.62, rising 1.3% on the session and about 20.7% for 2025, confirming it as the primary outperformer among major U.S. benchmarks. The Dow Jones Industrial Average (DJIA) sits at 48,134.89, up 0.4% on the day and 13.1% year to date, while the Russell 2000 (RUT) is ahead by roughly 13.4% this year, finally showing broad participation after years of lag. Beneath the index level, the AI complex and high-beta names drove much of the upside, while several consumer and energy names were punished on specific earnings and guidance disappointments.

Macro Noise Versus Earnings Reality

The week was saturated with macro noise: a presidential address without material policy changes, an AI-driven intraday panic, inflation data that came in acceptable, and a jobs report that failed to provide a decisive signal in either direction. Consumer-spending data ex-autos remained solid, while late-cycle earnings from names such as FedEx and General Mills were “good enough” but not game-changing. In performance terms, the S&P 500 added only about 0.1% for the week, the Dow slipped 0.7%, and the Nasdaq gained 0.5%. The pattern is straightforward: short-term headlines are being faded quickly, and the tape is trading mainly on three structural pillars for 2026—mid-teens earnings growth, a stable or gently easing Fed, and continued profit-margin expansion led by technology and AI beneficiaries.

Valuation Pressure: Shiller CAPE at Extremes

On top of that macro and earnings backdrop, valuations are stretched to historical extremes. The Shiller P/E (CAPE) for the U.S. equity market is now hovering in the 39–40 zone. In more than 150 years of data, that band has only been reached twice: during the late-1990s dot-com bubble, when CAPE approached 44 before the market broke, and now after a three-year, AI-powered melt-up. Historically, readings above the mid-30s do not persist; they are usually followed by prolonged sideways markets or drawdowns that can reach 20% to 50% before valuations normalize. That does not guarantee a 2000-style crash in 2026, but it does mean that the broad S&P 500 at current levels offers asymmetric risk. Buyers of SPY today are paying close to peak multiples and rely on nearly flawless earnings execution from AI leaders at a time when macro, political and regulatory risks are not trivial. The rational stance on the S&P 500 right now is Hold rather than aggressive Buy.

Flow and Sentiment Alarm: Bull–Bear Indicator Flashes Sell

Flow and sentiment data confirm that positioning has moved from cautious optimism into dangerous crowding. A major bank’s composite bull-and-bear indicator, which blends equity ETF flows, global breadth and hedging behavior, has climbed to 8.5 on a 0–10 scale, above its 8.0 contrarian sell threshold. Since 2002, similar readings have been followed by an average 1.4% decline in the S&P 500 over the next three months, while global equities, measured by the MSCI All-Country World Index, have suffered an average 8.5% drawdown in that same window, with first-month upside typically capped near 1.7%. This latest signal is driven by heavy inflows into equity ETFs as investors chase performance, a broadening of participation across global indices that often marks late-phase bull markets, and hedge funds cutting long VIX futures, showing reduced demand for protection. The message is not “crash tomorrow,” but it is clear: over the next one to three months, probabilities tilt toward a correction rather than another straight-line melt-up.

AI Trade: Core Engine Now in “Prove It” Mode

The AI trade remains the central engine of outperformance for both the Nasdaq and the S&P 500, but the tone has shifted from unquestioned enthusiasm to “prove it” mode. Nvidia (NVDA) closed around $180.76, gaining 3.8% on the day and roughly 3.4% over the week, despite a 3.8% midweek drop when AI-bubble fears resurfaced. The pattern is consistent: AI scare, fast drawdown, then a strong bid as long as earnings revisions remain positive. Oracle (ORCL) was pressured earlier in the week on concerns about AI data-center capex and timing but recovered as investors refocused on its role in the TikTok U.S. joint venture and its cloud-infrastructure footprint. At the index level, the key variable is margin behavior. Aggregate S&P 500 operating margins are projected to rise from about 13% in 2019 to roughly 17% in 2025 and close to 19% in 2026, with most of the improvement coming from technology, cloud and AI-intensive models. That “golden age of margins” narrative is what justifies premium valuations in QQQ and megacap tech names such as Microsoft (MSFT), Alphabet (GOOG), Meta Platforms (META) and Amazon (AMZN). As long as revisions for these stocks stay positive, AI remains a structural long; the focus shifts to entry discipline rather than chasing stretched multiples.

Costco (COST): High-Quality Retail in a 20% Drawdown

Outside AI, one of the clearest large-cap dislocations sits in Costco Wholesale (COST). The stock trades near $855.62, approximately 20% below its early-2025 high of $1,078.23, with a 52-week low around $844.06 and a market cap of about $380 billion. Costco runs a thin-margin membership model, with gross margin at 12.88% and a 0.59% dividend yield, and the market was disappointed when management declined to issue a special dividend this year. Recent quarters have been mixed at the headline level. Fiscal Q2 revenue beat expectations, but earnings per share of $4.02 missed the $4.11 consensus. Fiscal Q3 same-store sales growth of 5.7% fell short of the 6% investors expected, and same-store growth decelerated again in Q4 even as total revenue and EPS beat forecasts. Q1 results were fundamentally healthy, but the absence of a special dividend removed a short-term catalyst. On the membership side, the first fee hike since 2017, implemented in 2024, produced a modest decline in renewal rates, a reminder that even Costco is not completely insulated from inflation and consumer stress. The long-term picture, however, remains intact. Costco operates 921 warehouses, the majority in the U.S., but is expanding internationally with five new overseas locations planned for this fiscal year. Adjusted same-store sales abroad grew 6.8% last quarter, with stronger traffic and higher ticket sizes than in the U.S. Analysts still see upside: the consensus price target sits around $1,043.44, implying roughly 22% potential upside from current levels. Given its multi-decade history of total-return outperformance versus the S&P 500, the combination of a rare 20% pullback, robust membership economics and international runway makes COST a Buy on a 12- to 36-month horizon.

Weekly Outliers: NKE, RIVN, RKLB, CCL, FCEL

The week also delivered several sharp single-name moves across consumer, EV, space, travel and clean energy. Nike (NKE) closed near $58.71, down about 10.5% in one session, as the market signaled that it is finished paying premium multiples for global brands that do not show convincing growth acceleration. In a market trading around 25 times 2025 earnings with CAPE near 40, mediocre growth plus brand risk is not tolerated; on risk-reward, NKE now belongs in Sell or strong Underweight territory relative to higher-quality choices such as COST or the AI leaders. On the speculative side, Rocket Lab (RKLB) around $70.52, up 17.7%, and Rivian (RIVN) at $22.45, up 10.7%, prove that appetite for space and EV risk is still alive whenever macro fear subsides, but neither company currently offers the profitability profile required for a core long-term position. Carnival (CCL) at $31.12, up 9.8%, continues to benefit from robust cruise demand and gradual balance-sheet repair, but the name is highly exposed to any consumer or rate shock. FuelCell Energy (FCEL), falling 13.5% to about $8.34, illustrates how aggressively the market is repricing unprofitable, long-duration “green” stories as capital rotates toward profitable AI, cloud and quality cyclicals. In positioning terms, Nike is a Sell or serious Underweight, CCL is a Hold with clear macro sensitivity, and RIVN, RKLB and FCEL should be treated as small speculative trades only, with tight risk controls.

Index Outlook 2026: Earnings Momentum Versus Late-Cycle Risk

Looking into 2026, two conflicting narratives dominate the U.S. stock market. The bullish scenario is earnings-led continuation. Consensus expects around 13% earnings growth for the S&P 500, pushing index earnings toward $310 per share and operating margins toward 19%. Combined with a Federal Reserve that is either stable or gently cutting, that supports a 7,750 year-end 2026 target for the S&P 500, equating to mid-teens upside from current levels. In that world, tech and AI remain the primary drivers and the Nasdaq and QQQ continue to outperform the Dow and traditional cyclicals. The opposing narrative is valuation and flow mean reversion. CAPE near 40, three consecutive years of likely double-digit returns and a fresh contrarian sell signal from a major bank’s flow indicator are all classic late-cycle markers. Any re-acceleration in inflation, a slower-than-expected rate-cut path or clear disappointment in AI capex payback would be enough to crack the multiple. Historically, stretches of multi-year 20%-plus gains in U.S. equities are not followed by similar runs; they are followed by flat or negative periods while earnings grind higher in the background. Translating that into positioning, SPY deserves a Hold with a slight underweight versus a neutral benchmark, QQQ is a Hold with Buy-on-pullback logic, DIA remains neutral ballast, and IWM can be accumulated selectively with strict balance-sheet quality filters.

Process Edge: Benchmarking Against SPY, QQQ, IWM, TLT, GLD

A key takeaway from the data set is not a macro chart but a process example. A full-time trader with a confirmed record of outperformance—24.6% average annual returns between 2018 and 2022, triple-digit gains in 2023 and about 79% in 2025—credits structured after-action reviews rather than forecasts for his edge. He conducts monthly and annual reviews in which every strategy is examined, tracking what works, what stops working and what must be shut down. Crucially, his portfolio is always benchmarked against SPY, QQQ, IWM, TLT and GLD to verify that active decisions are actually adding value versus simple ETF holdings. Trading is treated as a business; methods that no longer deliver are cut the way a company would cut a loss-making product. For non-professional investors, the lesson is direct. At least once a year, returns should be compared methodically to these benchmarks, with the willingness to exit underperforming mutual funds, strategies or managers rather than defending them emotionally. That process discipline will matter more over the next decade than trying to guess the exact S&P 500 level at the end of each year.

Actionable Stances: Major Stocks and Core ETFs

Given the current pricing and data, the stance across key stocks and indices is straightforward. Costco (COST) is a Buy: the stock is down about 20% from its peak, consensus targets imply roughly 22% upside toward $1,043, the membership engine continues to generate recurring cash flow, and international growth is running ahead of the U.S. division. For long-only portfolios benchmarked to the S&P 500, Costco remains one of the few large-cap consumer names that can realistically match or exceed index total returns over the next decade. Nvidia (NVDA) is a high-risk Buy: volatility is significant, but the company sits at the center of AI infrastructure spend and margin expansion. As long as earnings revisions and AI capex plans remain intact, pullbacks triggered by sentiment rather than fundamentals are attractive entry points. Oracle (ORCL) justifies a Buy rating as well, supported by its cloud positioning and TikTok U.S. joint-venture upside. Amazon (AMZN), Alphabet (GOOG), Microsoft (MSFT) and Meta Platforms (META) remain core Holds with Buy-on-dip logic, since they anchor earnings and margin power in both the Nasdaq and S&P 500. On the other side, Nike (NKE) is a Sell or strong Underweight at current levels; the single-day 10.5% decline and lack of clear growth catalysts make it a poor use of risk capital compared with COST or megacap tech. Walmart (WMT) and BJ’s Wholesale (BJ) are Holds, solid but without the same membership leverage and international white space as Costco. At the index level, SPY is a Hold with defensive risk management, QQQ is a Hold with selective buying on weakness, DIA is neutral, and IWM is a selective Buy when paired with rigorous quality filtering.

Integrated Weekly Takeaway and Near-Term Bias

Across the Nasdaq, S&P 500, Dow and Russell 2000, the message from this week and the year-to-date profile is precise. The U.S. stock market remains in a bull phase, with SPX up about 16%, Nasdaq around 20.7%, Dow roughly 13.1% and Russell about 13.4% in 2025. At the same time, valuations are at extremes, Shiller CAPE is back in a danger zone seen only before the dot-com bust, and a major flow-based indicator has flashed a contrarian sell signal at 8.5 out of 10. Earnings and margins, particularly from AI and tech leaders, are strong enough to justify high prices if execution stays clean, but the room for error is small. The practical stance for the coming weeks is to respect the uptrend while acknowledging that the probability of a 5%–10% correction in the broad indices is now higher than the probability of another effortless melt-up into 2026. That means staying invested in structural winners such as NVDA, MSFT, GOOG, META, AMZN and COST, treating broad S&P 500 exposure as a Hold rather than an outright Buy, and keeping speculative names like RIVN, RKLB and FCEL confined to small, tightly managed positions. The U.S. stock market is still fundamentally supported but priced for perfection, and positioning needs to reflect both sides of that reality.