Why the Market Will Continue Higher Next Year

There has been a lot of back and forth in the media about a potential AI bubble and extensive geopolitical tensions—plenty of reasons why one could have a bearish outlook on the market. On the other side of that argument, however, there are also reasons to believe that the stock market will continue higher next year. Often, in the midst of terrible news, markets outperform expectations. Below are the reasons I believe stocks will be higher next year.

Underperformance of high-quality stocks relative to growth stocks this year: AI-driven businesses have taken center stage, and as a result, a reversal or consolidation in the space would not be surprising. This creates an opportunity for other businesses—particularly value-oriented companies with strong financials—to take on a larger leadership role going forward.

Supportive global monetary policy: The Federal Reserve has recently cut interest rates, which is generally supportive of the stock market. Europe and Japan are also implementing stimulus programs, which could lead to stronger economic growth and improved stock market performance in their respective regions.

Limited signs of broad overextension: Other than gold and silver, there appears to be no significant overextension in stock prices from a technical perspective. While double-digit growth may be unlikely, a continuation of slow to moderate growth seems reasonable. This environment favors dividend-paying, high-quality stocks playing a larger role in overall market performance.

Inflation and commodity constraints: Higher inflation has historically coincided with higher nominal stock prices. This trend could be exacerbated by supply constraints in key commodities such as copper, uranium, and steel, driven by increasing global energy demands.

Tax policy tailwinds: Recent tax legislation scheduled to take effect in January may provide an additional boost for corporations and high-net-worth individuals, potentially increasing the amount of capital reinvested into financial markets.

A strong stock market also presents a moral dilemma. Ongoing deregulation may boost corporate profitability while increasing risks to public health and the environment. Similarly, the continued replacement of workers with AI-driven efficiencies can improve margins and earnings, even as it creates broader social and economic challenges. From a purely market perspective, these forces can still support continued equity performance.

Looking ahead, portfolios should be adjusted to reduce concentration risk—particularly excessive exposure to AI-driven and high-growth stocks—and place greater emphasis on high-quality, value-oriented companies. Gold and select commodities may continue to appreciate as the U.S. dollar weakens amid further rate cuts and slower economic growth, providing an additional layer of diversification and risk management.

Eureka Wealth Management provides personalized investment advice aligned with individual goals, risk tolerance, and long-term financial objectives, along with comprehensive retirement, insurance, and tax and estate planning strategies. Complimentary initial consultations are available by phone at (760) 537-0791 or online at eurekawealthmanagement.com.

Sources:

FT: "The best time to buy qual­ity stocks is now" link

FT: "The looming coppercrunch" link