Wall Street is betting on the best of both worlds in 2026: interest rate cuts+AI+tax reform resonate

Comparing news, Wall Street strategists generally believe that the US economy and the stock market may experience rare multiple favorable resonances in 2026. US stocks are expected to continue to rise under the combined effects of expectations of the Federal Reserve's interest rate cut, Trump's “Big and American Act” tax incentives, falling inflation, and AI boosting productivity.

The market is watching the latest CPI data, which is expected to remain at 2.7% year over year. The strategist pointed out that with falling oil prices and easing housing costs, the one-time price increase effect brought about by superimposed tariffs has subsided, and the room for downward inflation may exceed expectations. At the same time, the cooling of the job market provided policy space for the Federal Reserve to cut interest rates during the year, and the decline in US bond yields may further reduce financing costs and stimulate investment and consumption.

On the fiscal side, the Big and Beautiful Act allows enterprises to depreciate 100% of their capital expenditure at an accelerated rate, and is pushing companies to advance future investments to 2026. Wall Street believes that this policy will significantly boost capital expenditure. Goldman Sachs expects AI-driven productivity gains to drive S&P 500 earnings per share (EPS) to grow 12% in 2026. Recent data shows that US labor productivity has recorded its fastest growth rate in two years.

However, analysts also warned that the risk of AI substitution for employment is rising, and if it has an impact on the labor market, it may become a new destabilizing factor. Overall, Wall Street sees 2026 as a rare window period: interest rate cuts, tax reform and AI work simultaneously, but we still need to be wary of structural differentiation and potential risks.