Sarah Malik’s 2026 Investment Outlook: S&P 500 at 7500

Before heading to Davos for the World Economic Forum, Sarah Malik, New Chief Investment Officer and Head of Equities and Fixed Income, provided her comprehensive take on capital allocation, Federal Reserve policy decisions, and the state of the American economy. Her outlook for 2026 focuses on earnings growth exceeding 10%, with technology leading the way, while setting an S&P 500 price target of 7500 for the year.

Malik’s assessment reveals that 2026 so far has been a tale of macro versus micro, with three key factors driving markets: geopolitical issues, Fed tensions, and earnings growth. Where she’s hanging her hat is on earnings growth, expecting tech to lead earnings with two times the earnings growth of the rest of the S&P 500. This focus on fundamentals rather than macro headwinds provides a clear framework for navigating what promises to be a volatile but potentially rewarding year for investors.

The Macro Backdrop: Three Key Factors

According to Malik, 2026 has been dealing with three factors: geopolitical issues, Fed tensions, and earnings growth. While geopolitical concerns and Federal Reserve policy uncertainty create volatility, the investment strategy is firmly anchored in earnings growth. This approach recognizes that while macro factors can create short-term market movements, long-term performance is driven by corporate profitability and growth.

The emphasis on earnings growth reflects a fundamental belief that strong corporate performance can overcome macro headwinds. With expectations for earnings growth exceeding 10% for the year, supported by strong fourth quarter 2025 earnings, the foundation for market gains appears solid. This earnings-driven approach provides a buffer against the volatility that geopolitical issues and Fed tensions may create throughout the year.

Technology: The Earnings Leader

Malik’s outlook strongly favors technology stocks, expecting tech to lead earnings with two times the earnings growth of the rest of the S&P 500. This projection builds on strong fourth quarter 2025 earnings and positions technology as the primary driver of market performance. The expectation is that tech companies will continue to deliver strong earnings, leading the S&P higher toward the 7500 price target.

This tech leadership reflects several factors: continued innovation, strong demand for AI and cloud services, and the sector’s ability to maintain pricing power and margins even in uncertain economic conditions. The concentration of technology strength in the United States also supports a bullish view on US markets relative to international alternatives, as tech remains a dominant US play.

Policy Agenda: Affordability and Deregulation

When asked about policy impacts, Malik identified two agenda policies to watch: affordability and deregulation. These policies, she believes, will be good for the American consumer and markets. The focus on affordability addresses a key concern: the K-shaped consumer recovery where higher-end consumers have continued to spend, but lower-end consumers are struggling because of higher inflation.

Anything that supports affordability should help stabilize the consumer, creating a more balanced economic foundation. Deregulation, meanwhile, is expected to be good for markets, especially for banks. Malik noted that bank earnings for the fourth quarter of 2025 already showed the benefits of deregulation, which should help open up capital markets and make it easier for banks to operate. This should be positive for the earnings growth that the investment strategy is relying on this year.

Valuation Concerns: Premium Market, Volatility Risk

Malik expressed concern about valuations overall, noting that the market came into this year at a premium, which always raises the risk for volatility. This premium valuation makes the market more vulnerable to negative surprises, particularly from the two factors she identified as potential volatility drivers: geopolitical issues and Fed tensions.

The premium valuation environment means that any negative developments could trigger sharper market corrections than would occur in a more reasonably valued market. However, the strong earnings growth expectations provide a fundamental support that could help the market work through periods of volatility, as long as earnings continue to deliver.

Federal Reserve Policy: Two Rate Cuts in Second Half

Malik’s call is for two rate cuts in the back half of 2026, delivered by the new Fed chair. She doesn’t expect a rate cut in the first quarter, and probably not even in the second quarter. The rate cuts will be driven by several factors: inflation is not accelerating—it’s fairly plateauing and should continue to decline as affordability measures come into play, causing more measured inflation going forward.

On the employment side, Malik views employment markets as relatively stable. While employment has declined, the economy is still in a job creation environment, so employment markets look okay. With the consumer potentially doing better, inflation reasonably benign, and employment stable, the door opens to two rate cuts in the back half of 2026. However, tensions around Fed independence do make markets nervous, which could contribute to volatility.

Sector Performance: Technology, Industrials, and Materials Lead

When examining which groups will show the best growth, Malik follows the earnings data. The group that should grow the fastest earnings—over 2x the S&P 500—is tech, which is where she thinks will lead. Beyond technology, the sectors that should lead the leaderboard this year would be technology, industrials, and materials.

Bank earnings have been somewhat mixed, but banks had a strong rally last year versus the S&P 500, so a lot was priced into banking stocks. The story of deregulation, optimism over capital markets, business doing better, and rate cuts were all positive for banks and had been somewhat priced in. The credit card cap did make investors nervous, which contributed to some mixed performance from bank stocks.

Hard Assets: Infrastructure Over Commodities

When asked about exposure to hard assets like gold, silver, and copper, Malik’s view is that hard assets are a small piece of people’s portfolios and not always the necessary diversification tool. While she recognizes the story of hard assets doing better, she thinks a better hard asset investment is infrastructure.

Infrastructure has stronger tailwinds in terms of building more manufacturing back in the United States. The shift to renewable energy is going to need more infrastructure. And of course, AI demand requires more power, which is infrastructure. She cited companies in the utility space like NiSource, an Indiana-based utility company with strong growth rates for their customer base, pricing power, and an AI data center play. This represents the hard assets that she prefers for portfolios.

Global Markets: US and Tech Focus

For diversification reasons, Malik thinks global exposure is great, but this has to do with tech versus everything else. If you believe in tech, that means tech is a dominant US play, so you believe in the US. She acknowledges that last year non-US stocks actually performed quite well, and there is some value over there, especially in financials. However, the US and technology stocks will continue to lead in her view.

This US-focused approach reflects the concentration of technology leadership in American markets. While international diversification has merit, the earnings growth story is strongest in US technology companies, making US markets the primary focus for equity allocation.

Portfolio Allocation: What to Avoid and What to Include

Within equities, Malik would avoid what was seen earlier in 2026: the safety trade leading consumer staples. That’s an area where it’s kind of a low-growth sector, and unless you’re very bearish on the markets, they tend not to outperform other areas. Instead, she likes private equity outside of public equities because she thinks M&A markets and capital markets will pick up this year.

She also still likes private credit, infrastructure, and within fixed income, if you want non-US exposure, emerging markets debt looks attractive now that some of these tariff issues are either well known or moving behind us. This reflects a shift toward alternatives and away from traditional 60/40 portfolios.

The New Portfolio Structure: 50/30/20

Malik noted that she started in the industry 30 years ago when most people had a traditional portfolio of 60% equities, 40% fixed income. For diversification reasons, that portfolio is changing to 50% equities, 30% fixed income, and 20% alternatives like private credit, private equity, and infrastructure. This shift reflects the growing importance of alternative investments in portfolio construction.

As cash on the sidelines comes into markets, Malik thinks it will go to a blend of asset classes. It’ll be positive for equities, but it’s also going to be positive because a lot of individuals and institutions now are looking to add those alternatives to their portfolios. This suggests that the trillions in money market accounts won’t simply flow into equities, but will be distributed across a more diversified asset allocation.

Money on the Sidelines: Trillions Waiting

There’s significant money on the sidelines, including some eight trillion dollars in money market accounts, plus expectations of $200 billion in tax refunds, with one analyst expecting people to spend 70% of that money. However, Malik notes that cash on the sidelines in the tune of trillions of dollars has been a theme for many years now.

Part of that was because of high interest rates—you could get four or 5% returns on cash, and that’s where people chose to park their money to keep liquidity. As rates come down, some of that cash may transition into markets, but it will go to a variety of places, not just equities. The new portfolio structure of 50/30/20 suggests a more balanced approach to deploying that cash.

Tariffs: Short-Term Movers, Long-Term Reality

Regarding the Supreme Court decision on whether the president’s tariffs are legal to use in an emergency, Malik thinks it will be a short-term mover for the markets, especially if tariffs are rolled back, but longer term tariffs are here to stay. The good news is that the big hit to inflation on the upside that was thought would come from tariffs really didn’t come to fruition in 2025.

So either way, tariffs are starting to be more priced in. Volatility this year will be caused by geopolitical issues and of course some volatility around the new Fed chair announcement. This suggests that while tariff policy may create short-term market movements, the longer-term impact is already being incorporated into market expectations.

The Bottom Line: Earnings-Driven Growth Toward 7500

Sarah Malik’s 2026 investment outlook centers on strong earnings growth, with technology leading the way toward an S&P 500 target of 7500. While geopolitical issues and Fed tensions will create volatility, the focus on earnings fundamentals provides a clear path forward. The emphasis on affordability and deregulation policies, combined with expectations for two rate cuts in the second half of the year, creates a supportive backdrop for equity markets.

The shift toward a 50/30/20 portfolio structure reflects the evolving nature of portfolio construction, with alternatives playing an increasingly important role. As trillions in cash on the sidelines potentially flow into markets, they’ll be distributed across equities, fixed income, and alternatives, supporting multiple asset classes. While valuations are a concern and volatility is expected, strong earnings growth, particularly from technology companies, should drive the market higher throughout 2026.

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