Wall Street's bullish calls for markets in 2026, HP to cut 6,000 jobs by 2028 in AI push

Key Concepts

• 50-day Moving Average: A technical indicator used to gauge short-term trends in stock prices.
• Sector Rotation: The shift of investment funds from one sector of the economy to another, often indicating a healthy bull market.
• AI Divergence: The differing performance trends between major AI-related stocks, specifically Nvidia and Alphabet.
• Circular Financing: A controversial practice where a company invests in another company, which then uses that capital to purchase products or services from the original investor.
• ASICs (Application-Specific Integrated Circuits): Chips designed for a specific purpose, often more efficient for that task than general-purpose chips.
• TPUs (Tensor Processing Units): Google's proprietary ASICs designed for AI and machine learning workloads.
• Earnings Revisions: Changes in analysts' forecasts for a company's or market segment's future earnings, often a leading indicator of market strength.
• Market Broadening: A shift from a narrow market rally (driven by a few large stocks) to a broader rally involving more sectors and smaller companies.
• Magnificent 7: A term referring to seven large, influential tech stocks (Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, Meta).

Market Overview and Bullish Outlook

US stock futures are pushing higher, extending a three-day gain for equities. The S&P 500 is now trading above its 50-day moving average, a technical sign of support. Despite concerns over valuations and the Federal Reserve's future policy path, Wall Street remains bullish. Deutsche Bank, Societe Generale, and JP Morgan have all boosted their 2026 targets for the S&P 500. JP Morgan specifically sees the benchmark potentially reaching 8,000 if the Fed continues its easing policy.

Globally, markets are largely green, with the NASDAQ up 4% over the last three days, the Russell 2000 up almost 7%, and the S&P 600 (small caps) up over 7%. This indicates a strong backdrop, particularly for smaller stocks.

Sector rotation is highlighted as a key characteristic of a bull market. Healthcare has been a standout performer, ranking second over the last three days (up 5%) and by far the best performer since the beginning of the fourth quarter (up 14%), significantly outpacing utilities (up 2%) and the S&P 500 (barely positive). This suggests that as AI leaders like Nvidia faced headwinds, other sectors stepped up.

Big Tech and AI Dynamics: Nvidia, Alphabet, and Overinvestment Concerns

A significant AI divergence has been observed between Nvidia and Alphabet. While both saw fortunes tied together earlier in the year, Nvidia has recently faced challenges. The stock is down 14% since the start of the month, erasing over $700 billion in market value, following reports of losing ground to competitors like Alphabet. In contrast, Alphabet has outperformed, up 123% since the April bottom compared to Nvidia's 85% gain.

Nvidia publicly acknowledged Google's traction with its TPUs and a reported Meta contract, even tweeting "Good for you Google." This unusual public statement came amidst Nvidia's efforts to counter criticisms, including accusations of circular investing and comparisons to Enron or WorldCom. Nvidia defended its chip longevity, stating that its chips can last a long time, with some companies still using older A100 chips.

The discussion also touched on the technical differences between Nvidia's general-purpose GPUs and ASICs like Google's TPUs. While ASICs are application-specific and can be more efficient for certain AI tasks, Nvidia maintains its general-purpose chips are still "better" and "faster," and are becoming more efficient. The development of proprietary chips by major customers like Google, Meta, Microsoft, and Amazon has been ongoing for years.

Concerns over AI overinvestment are growing. Famed shortseller Jim Chanos raised alarms about Nvidia's alleged circular financing, claiming the chip giant invests cash into money-losing companies (e.g., Coreweave) to enable those businesses to order Nvidia's chips. Michael Bur has echoed similar concerns. The Bank of America's latest fund manager survey also showed a record number of respondents indicating companies were overinvesting. Meta CEO Mark Zuckerberg even acknowledged during an earnings call that Meta "may be overbuilding" its data centers, though he expressed confidence in eventual utilization. Questions persist about the return on investment (ROI) for these massive expenditures, with Open AI and Anthropic reportedly not breaking even until 2030 and 2028, respectively.

HP and Dell Earnings: AI's Dual Impact on Business and Jobs

HP announced disappointing earnings, with its profit forecast falling short of estimates. The company plans to cut 4,000 to 6,000 jobs globally by using more AI tools, aiming for gross annual savings of $1 billion. HP CEO Enrique Lores discussed this cost-cutting initiative, highlighting the transition of AI tools from pilot to initiative phase for greater productivity. This move underscores AI's transformative impact on company operations and the job market, with AI being cited as the second most common reason for job cuts in recent Challenger reports due to automation and increased productivity.

In contrast, Dell saw gains today, driven by its bullish outlook for AI server shipments. Despite a slight miss on third-quarter revenue estimates, Wall Street appears to be focused on Dell's AI momentum.

Economic Outlook and Market Broadening for 2026

Matt Stucky, Chief Portfolio Manager of Equities at Northwestern Mutual Wealth Management, anticipates a broadening out of the markets and economy in 2026. This shift would move beyond the narrow focus on AI and big tech that has characterized the last two and a half years, driven by the Fed's rate hikes. He expects AI spending to continue, but also sees opportunities for sectors like housing and manufacturing to improve as monetary policy eases.

The catalyst for this broadening is sustained earnings revision strength in US small caps and mid-caps, which has been observed over the last four to five months. This indicates that earnings growth is not solely driven by the "Magnificent 7" but by a wider segment of the economy. Actual earnings growth following these expectations will be crucial for a sustained rotation.

Regarding the labor market and sentiment, consumer anxiety is high, with the University of Michigan consumer confidence survey showing 71% of respondents expecting employment to be higher over the next year, the highest since 1980. However, Stucky notes that this labor market softness, while not outright weakness, is what allows the Fed to cut rates, which in turn can help sectors like housing and manufacturing recover. He emphasizes the historical correlation between earnings growth and employment, suggesting that broader earnings growth could eventually support job expansion.

Stucky advises investors to embrace diversification, owning both the "Magnificent 7" and US small-cap and mid-cap stocks, as a strategy to navigate changing market dynamics, including easier monetary policy and fiscal tailwinds.

Trending Tickers

• Deere: The farm equipment maker's 2026 profit outlook fell short due to uncertainty in the US farm recovery, impacted by low crop prices and trade wars. Deere estimated a 15-20% decline in 2026 sales for its large agricultural segment in the US and Canada, leading to a nearly 4% drop in shares.
• Urban Outfitters: The retailer reported Q3 net sales that beat analyst estimates, with the stock heading for a record high. Its expanding brand portfolio, including Anthropology and Free People, supports further sales upside and margin strength.
• Autodesk: The software company boosted its adjusted earnings per share guidance for the full year. Deutsche Bank upgraded its rating to "buy" from "hold," citing steady subscription renewals and growing demand for its cloud-based design tools. Shares were up over 7%.

Synthesis/Conclusion

The market is currently experiencing a complex interplay of bullish sentiment, driven by expectations of Fed easing and continued AI growth, alongside growing concerns about AI overinvestment and its impact on jobs. While Wall Street analysts are setting ambitious 2026 targets for the S&P 500, the recent divergence between AI leaders like Nvidia and Alphabet, coupled with short-seller warnings about "circular financing," highlights underlying risks. The earnings reports of HP and Dell exemplify AI's dual nature: driving efficiency and job cuts at HP, while fueling growth in AI server shipments for Dell. Looking ahead, experts anticipate a broadening market rally beyond the "Magnificent 7," contingent on sustained earnings growth in small and mid-cap companies and a delicate balance in the labor market that allows for Fed rate cuts without significant economic weakness. Diversification is recommended as a key strategy for investors navigating these evolving dynamics.