Stock Market Set for 8% Rebound in 2026 After 2025 Slump, Despite Risks of Overvaluation
The stock market faced a rocky start in 2025, as the S&P 500 fell by 10%, driven by investor concerns over a potential recession. Although there was a brief rally in mid-March, persistent economic uncertainty and trade tensions dampened market optimism, leading to a weak conclusion for the quarter. Initially expected to see modest growth of 2.4%, projections for 2025 were revised to a 2.9% decline, marking the second downturn in three years. However, market experts are predicting a rebound in 2026, with an expected 8% surge in stock values.
Market Value Projected to Reach a Record $138.4 Trillion by 2026
Investors have been on a bumpy ride over the last year. After record-breaking stock performances in 2023 and early 2024, the year’s second half brought significant volatility. All tech giants saw their stock values nosedive due to the U.S. government’s expanded export restrictions on AI chips to China, expectations of future interest rate cuts, mixed earnings reports, and growing concerns about stock valuations.
Unfortunately, 2025 brought another hit. The escalating trade tensions initiated by President Trump’s aggressive tariff policies have had a major impact on investors’ confidence, causing a $4 trillion drop in market value. The Federal Reserve’s anticipated interest rate cuts, delayed until later in the year, and a significant drop in IPOs, mergers, and acquisitions only further fueled market volatility.
This perfect storm of negative events caused market forecasts for 2025 to shift into the red. Last year, Statista had projected the global stock market would grow by 2.4% and reach a total market capitalization of $127.4 trillion. However, the latest revision forecasted a 2.9% decline, the second market contraction in three years, bringing the total market cap down by $3 trillion to $128 trillion.
Despite this setback, Statista expects 2026 to be a year of recovery. After the 2025 plunge, the global stock market cap is forecasted to grow by a robust 8.1%, similar to growth rates in 2022 and 2023, and hit a record $138.4 trillion in 2026. In comparison, that would represent an increase of $6.5 trillion from 2024 levels and nearly $8 trillion more than in 2021.
Stocks in Major Markets Expected to Stay Significantly Overvalued
While the global stock market will grow by 8% in 2026, overvalued stocks remain a huge concern, raising questions about market stability. In 2025, the Buffett Indicator, a key metric comparing total stock market capitalization to GDP, will hit 112.4, signaling moderate overvaluation. However, this figure is expected to climb to 115.7 in 2026, pushing the market into significantly overvalued territory.
The U.S. market, home to the world’s largest stock exchanges, will see even more dramatic figures. Statista data show the Buffett Index for the U.S. stock market will rise from an already high 183 in 2025 to a shocking 188 in 2026. Despite forecasted corrections, the UK and Japanese markets will also stay overvalued. According to Statista, Japan’s index will drop from 146 to 140, while the UK’s will decline from 131 to 124. On the other hand, the Chinese stock market will remain the only undervalued among the top five, but its index will increase, rising from 67.3 to 73 year-over-year.