Interactive Brokers’ chief strategist sees reasons for caution in ’26

When it comes to markets, stock and options watcher Steve Sosnick is, by nature, a bit cautious.

It’s a characteristic that stems from his years working as a risk manager on options market-making desks, a job that essentially forced him to spend an undue amount of time worrying about what could go wrong with the algorithmic models at the heart of the company’s operations. The experience has left him with something of a bias.

“That bias is toward looking for the monsters under the bed,” said Sosnick, chief strategist for Interactive Brokers, in an interview Monday, after he published his 2026 market outlook, which compared to the mostly bullish forecasts from around Wall Street seems pretty meh.

While stressing that he doesn’t consider himself especially bearish, Sosnick sees the S&P 500 ending 2026 at 6,500, implying a 5% pullback from where the blue chips ended Monday.

That’s the lowest official prediction we’ve seen from Wall Street’s scribes so far during the end-of-year outlook season.

(Previously, the most lackluster forecast we’d seen was Bank of America’s call for stocks to end next year at 7,100, which would be a modest gain of about 4%.)

“As a natural contrarian, if everybody is zigging, perhaps there’s a reason to think about zagging,” he said. “I think there’s room for a bit of retrenchment based on the various factors.”

One major one: depending on President Trump’s choice to lead the US central bank after current Chairman Jerome Powell’s term expires in May, there’s a risk that long-term interest rates could rise, he said.

Powell’s heir apparent is reportedly White House economist Kevin Hassett, whose closeness to the administration and public support for the low-rate policies the president has pushed the previously independent Federal Reserve for has prompted some to worry that longer-term rates could rise if the Fed is seen as insufficiently concerned about inflation.

“Markets have an interesting way of testing new Fed chairs,” Sosnick said. He sees US 10-year yields rising to 4.45% by the end of next year (they’re currently at 4.16%), and suggests that a sharp rise in rates could cause some volatility for stocks.

“In theory, high rates should pressure stock prices,” he said. “In reality it’s not always so cut and dry.”

That’s because the path of the stock market will also depend on other factors, like the state of the US economy and its key growth driver: the AI investment boom.

But there, too, Sosnick sees reason for caution, suggesting investors have become increasingly worried that the investment boom from AI hyperscalers might not pay off for shareholders any time soon.

“It’s only normal, and actually desirable, for investors to get concerned with return on investment,” he said. “This whole AI trade only makes sense if at some point there are bottom-line results.”

And while AI technology clearly has potential for huge economic benefits, it’s still up in the air which companies will ultimately dominate the space.

“If it was 1998 or 1999, we would all be using Netscape browsers and searching on Yahoo, while connecting via AOL,” Sosnick said, adding, “What it means to me is we don’t know who the winners are going to be.”