Wall Street Bets on 2026 "Having Your Cake and Eating It Too": Interest Rate Cut + AI + Tax Reform Synergy

On January 12, Wall Street strategists broadly expect the U.S. economy and stock market may see a rare confluence of favorable factors in 2026. Supported by Federal Reserve rate-cut expectations, Trump’s “Big and Beautiful Act” tax incentives, easing inflation, and AI-driven productivity gains, U.S. stocks are poised to extend their upward trend. Market focus now centers on the latest CPI data, with year-over-year expectations holding at 2.7%. Strategists note that falling oil prices, moderating housing costs, and fading one-time tariff-driven price hikes could push inflation lower than forecast. Meanwhile, a cooling labor market gives the Fed policy room to cut rates this year—potentially pushing U.S. Treasury yields lower, reducing financing costs, and spurring investment and consumption. On the fiscal front, the “Big and Beautiful Act” allows businesses 100% accelerated depreciation on capital expenditures, prompting firms to front-load future investments into 2026. Wall Street sees this policy as a major boost to capital spending. Goldman Sachs projects AI-driven productivity gains will lift S&P 500 earnings per share (EPS) by 12% in 2026. Recent data shows U.S. labor productivity grew at its fastest pace in two years. However, analysts warn that rising AI job displacement risks could become a new source of instability if it impacts the labor market. Overall, Wall Street views 2026 as a rare window: rate cuts, tax reforms, and AI align to support growth—but structural divergence and potential risks still require monitoring.