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2026 Not scary, but stock market worries are starting to show.

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This is not a pep talk for the US stock market for the first half of 2026. My older forecasting tools (with a two-decade track record) see the stock market as likely to have average gains — up 7.5% for an equal-weight version of the S&P 500 index. The probabilities of loss in both 1-month and 6-month time frames are somewhat above average. But, my newer data-hungry models (shown above) see the market as basically flat for a couple of months. In particular, the forecasts generally are showing some worry for tech stocks and the NASDAQ Composite. My personal guess is that people starting to get scared about lofty tech stock pricing will try stall the tax man by holding off selling until New Year’s. I bet we see some profit taking in January.

My forecasting is limping a bit because a few of the economic data series I rely on were not updated because of the Government shutdown. Several of the data sets are still not up to date. Looks like getting up to speed is going to take them a few more weeks. Fortunately the country does not appear near an economic crisis. The country’s soul is in greater danger.

As has been the case all year, the S&P 500 is mildly above my long-term GDP-based trend line, and the equal-weight version of the S&P is slightly below trend. The flying stocks of the Magnificent Seven megastocks are still trying to hang on, but the everyday stocks that fill out the market are starting to show some damage from tariff induced rising costs and economic uncertainty. The economy is starting to show strain.

October 2025 thru March 2026: Still Likely Positive

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My 2-decade-old market models and my data-intensive AI models basically agree that the U.S. stock market will probably perform fairly well over the next half year with a gain of roughly 6%. The newer models have a few extra worries for the next month or so than the old timers; even so, they are positive/flat. This could change suddenly, of course, if the Government shutdown continues very long — your guess on that is probably as good as mine. Also, I have no idea what the immediate market response would be if the Supreme Court shuts down the legally questionable parts of the Trump tariffs. Again, your guess is as good as mine and my models are silent on the subject.

Overall, the U.S. stock market continues to be split: the AI-supercharged Magnificent 7 stocks are still surging and the established market keeps performing a bit below normal expectations. Right now, the S&P 500 is about 8% above my long term trend line. Last round, it turned south when it reached 10% above trend. (The trend line has been rather reliable for the past few years.)

There is a real split between short-term stock market expectation indicators and long term expectations. Short-term indicators like current stock market index trends and several leading indicators (like the Sahm Rule) have been rather steadily positive. It is as if stock market ’emotion’ has been inoculated in some way so that it no longer gets jarred by erratic moves by the White House. Professional economists, however, are less positive looking forward. In the most simple sense, on one hand they see bad news coming, and on the other hand they see bad news coming. The actual impacts of the Trump tariffs are critical. If tariffs do, indeed, produce a ton of revenue, that means a net reduction in government overspending/stimulus and so a drain on the economy. The other option is that the tariffs don’t actually reduce the deficit significantly — heading the U.S. toward a debt crisis.

By Halloween we should see if stock market investors will continue to keep “whistling past the graveyard”. Expect fewer chocolates this year if the tariffs remain intact.

September thru February 2026: Probably OK

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My stock market forecasting tools are still blessed by not being able to read the daily newspaper. My hometown Washington, DC is essentially under martial law with gun-toting National Guard troops patrolling the streets reacting to a trumped-up ’emergency’ that does not exist, but my stock market performance models (except for September) remain reasonably positive. The forecasting models, with an excellent long term track record, indicate that a wide swath of U.S. economic data is basically benign and so the U.S. stock market will probably perform fairly well over the next 6 months. The September exception is that the S&P 500 (^GSPC on the chart) looks like it has gotten ahead of itself. Both my 18 year-old models with about a dozen economic variables and my current data-intensive models reach similar conclusions.

The macroeconomic data remains positive. Unemployment is still just 4.2%; money supply is growing at a 4% annual rate; inflation, only a bit higher than the Federal Reserve wants, is 2.7%; and corporate profits as of last quarter are growing mildly. Leading economic indicators generally are modestly positive with very low probabilities of a near-term recession.

The stock market division between highflyers like Nvidia versus the rest of the world decreased last month. As the graphs below show, the S&P 500 (NVDA accounts for 8% of the index) is now just 5% above its long term GDP-based trend line, and the equal weight version of the same stocks (SPXEW) is now exactly at the long term trend line.

I have a hunch that September will show stock market indecision, but volatility could easily shoot up toward the end of the month and into October. First, the question of the basic legality of the Trump tariffs will wind its way through the courts, eventually through the Supreme Court. Second, there is a significant chance of a U.S. government shutdown at the end of September since the FY2026 budget will probably need some measure of Democrat approval. And third, there is increasing concern over Trump’s health. (The helicopter flight path from the White House to Walter Reed Medical Center goes directly over my house.) I find a bit of comfort with the thought that the stock market, having weathered so much back and forth uncertainty in the Trump second term’s first months, may have been inoculated from instant major responses to potential new calamities. Wishful thinking no doubt.

Just before the storm? Or not?

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Near term stock market forecasts from my most detailed current models are basically flat (above), but for the coming half year they are “OK”. Not great, just OK. My older models running since 2007 say about the same thing with a 4% gain expected for the U.S. stock market. Meh. As shown in the following graphs, the S&P 500 is running about 10% above its long term GDP-based trend line (a little worrisome) and an equal-weighted version of the same stocks is running about 6% below its long term average. Translation: the market is still dominated by high-tech high-flyers, but the broader market of everyday companies has been mildly weakening for some time.

What worries me at the moment is that my family has started to ask me if the stock market is going to crash. That is never a good sign; usually they pay no attention to this blog or any of my other stock market stuff. If they ask, it means they are actually worried. And if they are worried it probably means a lot of others are scared as well. If a lot of people get scared, then most anything can happen. Rapidly.

The best part about Donald Trump’s sweeping economic program is that very little of it has actually occurred. All those cutbacks in government programs? While painful to many individuals, most do not kick in until October, and even then they are mere pocket change in the overall economy. All the Medicaid cuts? Don’t actually hit until 2027. And the huge tariff increases? They were supposed to begin today, August 1, but then we learn they won’t be implemented until August 8. Or, until…. There has been so much word-garbage spewed by the Trump world that most of the financial world has turned a deaf ear and has returned to following the actual economic data numbers.

For now, the actual economic data are not very exciting. GDP is growing; how fast is a question because of freakish shifts in foreign trade and business inventories, but GDP is definitely growing and is already as high as the Congressional Budget Office sees as possible without over-heating. Money supply and interest rates are normal-ish. Unemployment at 4.2% is still low. Home building is in the dumps and unfortunately is likely to stay that way for the foreseeable future. Inflation has only ticked up a bit. The U.S. Dollar (DXY) rose a rapid 10% last autumn as Trump was elected — and then fell even more after his inauguration. The almighty Dollar is still falling.

But, the overall economy is basically pretty good. So what is the concern about a stock market crash?

Increasing financial instability Big money, the accounts holding billions and trillions, normally moves investments around very slowly. Big money, like an aircraft carrier, is well accustomed to the countless small ups and downs of the economic seas. But, big money accounts cannot accept even the smallest chance of a total wipe-out. So, when there is even a hint of financial panic big money stampedes to the exits bringing about a financial and stock market crash. It will probably start in the long term bond markets. I see two ways that the Trump administration has assured a financial crash; just a question of which? and when?

World Markets In 1997-1998 the world experienced a series of national financial collapses that largely stemmed from increasing U.S. long term interest rates. In one country after another (Russia, Indonesia, Malaysia, Singapore, Thailand, Argentina, etc.) economic collapse was sudden. It even got a name tag: “Asian Contagion”.

No one knows, of course, what the Trump tariffs will actually end up. It seems the President himself likes to be surprised by what he does. TACO? But, certainly the potential exists for nations with frail economies to begin a cascade of national economic collapses. With the U.S. on an isolationist course, a clear potential exists for massive financial failure contagion. This sort of crash would be horrible, but does not appear to be on the immediate horizon.

U.S. Debt As I have written for months, the U.S. federal deficit at near 7% of GDP is unsustainable. It cannot continue forever, but no one knows when trust in the “full faith and credit” of the U.S. will break. Trump’s ‘one big beautiful bill’ further increases the deficit. Deceit (with delays in Medicaid reduction and only partial accounting for new tax cuts) continues to hide the full scale of the new deficit spending, something like $500B per year. Eventually, probably already, big money will “sell USA”. It would be best if that occurs with a slow further decline of the Dollar and gradual increases in long term interest rates. But, that is usually not how these things go.

In answer to my family’s question about a stock market crash my response is that none of my fancy stock market models see a crash as likely in the next half year. But, my models really aren’t very good at spotting truly crazy behavior. Sorry.

Tariffs the only big missing piece of a bad puzzle

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As I write on July 3, the U.S. House of Representatives has just passed Trump’s massive budget and policy bill; probably to be signed tomorrow. The remaining major piece of Trump economic policy to be settled will be the new large tariffs to be charged to products of all trading partners. Tariff outcomes may come into focus in the coming few months. A smaller, but quite important additional item is what Trump will decide about replacing Jerome Powell, head of the Federal Reserve. With these acts Donald Trump will have completed his redefinition of U.S. economic and foreign policy. Soon, we won’t be talking about the chaotic whip-saws of Trump policy making, but instead major macroeconomic movements will be underway — and not easily reversed.

My newer market models (above) are optimistic for the coming 6 months even though they generally see the markets as flat for the next month or so (partly since markets have risen so well this past month). My older models (with nearly 18 years of actual experience) are a bit less positive for the next 6 months, but several variants are distinctly of split minds for the next 3 months.

My puny stock market forecasting models only look 6 months into the future, and, frankly, they now are fixated on readings from a single long-standing data source. The models generally are largely unaware of the market distortions that will be created by the new tariffs, and they have only a hint of the significant increase in federal deficit spending or the retribution that world bond markets will enforce when they damn well feel like it. None the less, one leading indicator with a solid track record is flashing bright red.

The big concern of both sets of models is very specific: the current set of forecasts from the Survey of Professional Forecasters a set of detailed forecasts from roughly 40 top-ranked economists that has been recorded since 1968. Most of the other leading indicators I track point to a very low probability of recession or economic trauma in the next few months. The Survey of Professional Forecasters, however, sees a 35% chance of recession in the coming quarter — a VERY high number for this normally quite staid group. Clearly, they are extremely concerned about resolution of tariff turmoil, and doubt that it will end well.

The rest of the world is also worried. The Dollar Index (DXY) measures the performance of the U.S. Dollar against a basket of major national currencies. Since the start of the year DXY is down 10.4% — a major failing and the sword is still falling. The rest of the world obviously has grave doubts about the stability of the Dollar and the U.S. economy. It takes a lot of time to move trillions of investment out of an economy without causing a major alarm and a panic. But, that is what appears to be happening; and more should be expected. The stock market may continue to move up, but your actual wealth invested in Dollar-denominated assets is sliding down the drain. Keep watching DXY. A continued fall spells trouble.

Other than that, everything is great!

Greed remains ascendent

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My market forecasting models have turned quite positive for the next several months. The S&P 500 average is 5% above the long term trend, and an equal-weight version of the S&P 500 is 8% below trend, but it has been improving. The macro-economic basics for the market are uninspiring, but still acceptable. (GDP, corporate profits, interest rates, unemployment, inflation, etc.) But…

As I have been droning on for months, the key to the stock market future is what happens next with the unsustainable U.S. government deficit, at 6.28% of GDP, and a bit worse than last quarter. If the relative debt level begins to go down, then financial peace can prevail. But, if it continues to rise, it is just a question of time until the financial system “rapidly disassembles”.

Over the summer the U.S. government will plot its course for the future deficit with the two main variables being the FY2026 Federal Budget (One Big Beautiful Bill) and Trump’s magical tariff plan. Regardless of how the particulars fall out, it is obvious that the Trump administration is focused on providing bread and circus. The deficit will be as high as Trump and his minions feel they can get away with. Of course, they will simultaneously claim a tremendous victory against fraud, waste and abuse!

With the continuing gusher of deficit spending providing the party’s joy, my forecasts expect the stock market to bubble up until someone finally takes the punch bowl away. September and October are the months that usually call the shot, but there remains a distinct chance that The Trump Show could stage a spectacular summer finale in the form of a government shut-down.

Trump blinked on tariffs. Still not usual economic times.

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I wouldn’t pay much attention to these stock market forecasts for the next couple of months. Through executive orders Donald Trump continues to unpredictably shake up and shake apart the world economy. Then he largely reverses himself a few days later; saying that that is not what just he did. This is not usual for the US government and the economy, and it is not just about minor changes. My economic performance models don’t know about any really similar circumstances upon which they can draw conclusions. All they can estimate is what would happen if today’s situation was somewhat usual — which it is not.

My long term GDP-based trendline for the S&P 500 index is not much guidance either. Before April it was about 10% above the long-term trend. Then it crunched down in fear to being about 10% below trend. And now it is almost exactly at the trend line.

My older forecasting methods which have been documented since 2007 expect the market to probably slide a percent or so over the next two months and then stage a mild rise. My newer and more elaborate forecasts (shown at the top of this blog) say about the same thing.

What really matters, though, is what Donald Trump and the Republican Congress actually do about passing a budget authorization for FY2026, dealing with reauthorization of the US debt, and setting up a tariff regime that lasts for more than a few weeks. What could go wrong with that?

My guess remains that there will be a great deal of puffery and grandstanding. There will be much fear and theater. But, in the end they will declare a great victory of cutting spending and lowering taxes. This will actually result in some new and wonderful tax-loopholes, a major increase in wasteful government spending, and most importantly, a huge expansion of US debt. Most probably they will blame this on the Democrats.

Come July, I think a stock market boom might be underway. I feel sick.

Weeks of bad stock market news coming.

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The US stock market will likely be in free-fall for a few weeks until Congress passes the final version of the FY 2026 federal budget. No bottom in sight. But, short sellers should pay attention: instantly after the budget bill gets signed the stock market could launch an amazing boom and bubble. For geezers who might still retain a few memories, this probably will be similar to the 1998 stock market crash: sharp, deep, V-shaped, with a fast rebound. Don’t blame me; I’m just the highly fallable messenger.

Last Thursday and Friday stock market sent a clear message on Trump’s kind and gentle tariff announcement by immediately staging the worst 2-day market collapse ever. Ever. Prior to the announcement, stock prices were still elevated as they have been for many months, so there was plenty of room to fall. Even now, there still is plenty of room below.

Unless the President relents and eases the tariffs, the market faces only more bad news or worse, faces continuing unknowns about how the tariffs will actually affect the economy or how other nations will counter the tariffs, or further escalate the trade war. We have yet to learn, for instance, how the European Union plans to react to the tariffs. (I personally expect a major hit to US services in Europe where we are actually running a massive trade surplus. There go The Magnificent Seven.) A zero response from Europe is unlikely. Neither have we seen how much consumer prices will actually rise, how much business production will drop, or how much unemployment rises due to decreased economic activity. Multiple globs of bad news will probably keep falling down in coming days and weeks. We won’t see the actual drops in US corporate profits for months and months.

Any potential good news of US industrial redevelopment is months or years away. What’s at stake is that the US economy could quickly be in a significant recession. Fear alone is enough to cut demand enough to create a recession. It doesn’t take much, just a 2% to 3% cut in what people buy. The World economy is also in jeopardy. With a sudden recession stock prices can quickly fall a further 30% to 70%. An extended recession or depression could be worse still. All unknown now.

Many have wondered why, other than sheer incompetence, Trump chose to pull together and implement an instant slap-dash set of simplistic and drastic tariffs. Tariffs aren’t a new thing. Queen Elizabeth I used them to protect wool knitters. Throughout the past several hundred years tariffs have almost always come out of extensive lengthy negotiations and have been implemented with lag times to permit adjustment by the economy. Often a threat of tariffs has been enough to change things. What’s different this time? The answer is simple: He needed to have the massive taxes in-place now! They had to be gigantic and they had to be actual, not just in discussion. The bigger the better. Might make sense to go higher still. (see below)

Reconciliation budget Trump and his maga crew desperately want to extend the expiring tax cuts they enacted in 2017, and they want to add in roughly $1.5 trillion is new tax cuts. This can only be achieved via the appropriation budget for FY 2026, which along with an expansion of a massive deficit approval must be passed in the fairly near future. But, to get their way without input from Democrats, they need to use a congressional approval process called “reconciliation”. The final bill must pass both houses of Congress, and because of a Senate rule, it must not increase the long-term US budget deficit. “Arcane”, is a word typically used to describe the reconciliation process meaning mysterious, secret, confusing, or convoluted. Flim-flam scam, Kabuki theater, and “Lets’ just pretend” might also be used.

Here is how it needs to go.

Both houses of Congress have now passed resolutions that outline their versions of a new FY 2026 budget. The outlines are similar, but they contain few details. Crucially, these budgets will only balance via major cuts to federal spending programs and if truly massive tariffs are in place to make up for the revenue lost by the many tax cuts. The higher the expected revenue from tariffs, and the more spending can claimed to be cut, the more tax cuts can slide on through. For the legislation to gain approval from the Congressional Budget Office, the tariffs must be either in-place or fully defined in the legislation. Importantly, if the tariffs are contained in legislation two bad things would occur. First, the representatives would get blamed for imposing huge new taxes. Second, the tariffs would be much harder to remove later. Trump’s Executive Order saved then from catching any blame.

Filling in the details of the budget legislation is what is going to take a few weeks. Getting agreement on all the budget cuts that need to be made is going to be a problem. In particular, approximately $800 billion is health care is scoped for elimination. Also, many of the federal programs that have been scrapped actually are very important for various people. These will be a difficult pills for many Republican representatives to swallow. So, there may be additional show-downs and delays. Uncertainty will exist. “Brinksmanship” is a word that is often used to describe these negotiations.

The key, however, is that without the draconian tariffs and spending cuts in place, the reconciliation budget and its glorious tax cuts cannot pass. The tariffs must remain in-place for the next few weeks. Trump must pretend, at least, that the tariffs are real continuing policy.

Once the budget has been signed into law, the “Let’s pretend” theater can end. Instantly. Trump will be free to drop tariffs to the extent reality demands or that his whim and “instinct” feels is right. That is the moment that can also bring massive “emergency” spending, and could bring about a major “short squeeze” in the stock market.

But, until the budget gets passed, I don’t see anything but really bad news for the US stock market.

I hope I am wrong.

“What if” analysis. Ulp!

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I really don’t want to be alarmist, but things in the stock market could get much worse. 40% further decline? 60% more?

My stock market forecasts rely on gobs of tremendously boring data on a wide range of economic fundamentals. Usually economic fundamentals don’t shift instantly, nor do comprehensive data compilations such as for Gross Domestic Product or inflation. Most of the data I use is issued monthly or even quarterly. It is always somewhat out of date, and I just make adjustments.

Trump’s tariff announcements DID spin the economic world on a dime. My current data instantly became bogus. Suddenly ,the world economy is facing a dramatically different trade picture that threatens many countries with recession, or worse. Prior to the tariff announcements the US was already slowly sliding into recession. Now a US recession is highly likely according to more and more forecasters.

So, I shifted my forecasting process around to be able to ask it “What if?” questions, as in “What if the US was highly likely to be in recession next quarter, and certain to be in recession by September?” “What if oil prices continued to plummet down to $50 per barrel?”

Based on my entire existing database, what usually happens if the world economic order goes really out of whack is horrific. The S&P 500 6 month forecast would be an additional 40% loss and the worst probably 6 month loss could be 75% to 85%.

These are not hard and firm forecasts. No way. I only looked at a few possible alternatives. But, based on decades of stock market experience this is most probably how the market would perform. What we are facing now is a mild form of what did hit the stock market when Covid first spread.

The only thing that is certain is that more bad economic news should be expected and any positive news would be a major surprise.

This is not usual

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The statistical stock market performance models I report on here have done pretty well since 2007 forecasting normal market activity, but they cannot predict the unpredictable. The models forecast what the stock market usually does in situations when usual market factors operate. In no world is the instant imposition of massive market tariffs “usual”. In fact, a good test of when things return to something like normal will be when these market forecasts become accurate again. That is months away.

In the meantime, there are some guesses that seem to make sense.

Trump cannot back down, at least not until the next round of tax cuts has been approved. The tariff program is central to the Trump push to keep income taxes low and to further reduce taxes for the very wealthy. Thanks to his 2017 round of tax cuts, but also because of the continuing cost escalation of Social Security, Medicare, and Medicaid, the federal budget deficit has grown to a dangerous and unsustainable level — over 6% of GDP. Without the revenue of tariffs the low-tax regime will fall apart. The Trump/Musk budget cutting chain saw can only yield minor savings — they don’t go after the real problems. So, the Trump regime must pretend to practice fiscal responsibility until Congress has approved his new round of tax cuts. The new authorization could come within weeks, so there is a chance that Trump could declare victory and relent at that time. But…

Other nations are just starting to react. Trump’s tariff announcement yesterday was merely the opening salvo in what is likely to become an extended trade war. Individual nations and groups of countries like the European Union have yet to announce their counter-measures. In the case of the EU, in particular, this presents a very special opportunity to strike against American hegemony in high technology services. I think the ‘Magnificent 7’ high tech stocks should be fearful. Europe has wanted to strike back for decades.

Actual economic impacts have not yet hit. Trump simply made an announcement. It will take days, weeks, and months before prices rise, and supply chains become significantly disrupted. It will be June before corporate quarterly reports show ANY impacts. At best, significantly increased US industrial production will not occur for well over a year. It takes years to plan and build a new factory. There is a time lag before economic pain will be felt and a much longer period before any potential benefits are realized. Much pain before any gain. Much continuing uncertainty.

There will be many twists and turns along the way. Over the coming months the focus of attention of this saga will shift. Like any war there will be numerous battles, victories and losses. Translated to the stock market, there is near-certain high volatility and a net trail of losses. Most wars these days are won by attrition — maximization of losses. “Buy the dip” has been replaced by “sell the rally”.

This is not over. In other instances of massive exogenous stock market disruption (1987, 2007, 1998, 2020-2022) a stock market crash continues until it has obviously ‘gone too far’. In most cases that will be a total market capitulation of 30% to 60% loss. This avoidable disaster of crudely implemented tariffs has only just begun. After a real crash will be a great time to invest in stocks!