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As the S&P 500 continues to defy skeptics with its resilience, investors are looking for guidance on what comes next. Few voices command as much respect on Financial Sense as Craig Johnson, chief technical analyst at Piper Sandler—who we aptly nicknamed “Bullseye” for his consistent track record of accurately forecasting where the S&P 500 is likely to end up at the end of each year.

Johnson’s latest market outlook, however, is a departure from the exuberance of recent past, emphasizing caution, selectivity, and a shift in market leadership for 2026. Here’s what he had to say on our recent Financial Sense Newshour podcast.

2026 Outlook: A Modest Year Ahead

As he shared with us a year ago, Johnson’s S&P 500 year-end target for the end of 2025 was 6,600, which has now been hit and retested several times over the past few months. For 2026, Johnson projects the S&P 500 will reach 7,150, implying a slightly lower return for next year.

"I've used my bottoms-up model for years, and I haven't seen numbers as low as what it's pointing at for next year—around a 4 to 5% return. Whether you look at this fundamentally or technically, we're probably going to have a year where you're up maybe 5%, rather than a double-digit return like you've seen over the last three years."

Johnson’s analysis is rooted in decades of market data: after three consecutive years of double-digit S&P 500 gains, the odds of a fourth are slim, with the average fourth-year return dropping to just over 4%. As he sees it, 2026 will be a year to temper expectations and focus on capital preservation.

Valuation Risks: Tech’s Limits

A major concern for Johnson is the stretched valuations of tech leaders, especially Nvidia. He’s skeptical of ambitious projections that see Nvidia’s market cap doubling to $10 trillion:

"If you're going to double Nvidia, you're talking about a $9 to $10 trillion market cap. I’m just not sure there’s enough money out there to get Nvidia to $10 trillion. For US equities, you'd need a lot of international money coming in. I just think it's going to be very hard."

With technology now making up 37% of the market’s weight, Johnson warns of excessive concentration risk. “If people are really going to be overweight tech, that means 40% of your portfolio is just in tech,” he cautions, arguing that true diversification is being neglected.

Rotation Unfolding: From Growth to Value

One of Johnson’s core themes for 2026 is the rotation away from growth stocks into value sectors. He observes that the “Mag 7” tech giants are no longer the market’s driving force:

"The Mag 7 are probably the Lag 7, and we're seeing this rotation of assets likely moving down-cap into the Russell and other areas that will probably benefit from a more cyclical market."

Johnson believes financials, energy, and basic materials as sectors primed for leadership. Even as oil prices have stagnated, energy equities have gained strength. With the Fed’s recent rate cut and a steepening yield curve, Johnson sees a favorable environment for financials—and believes a modest shift of capital out of tech could provide a meaningful boost to underweight sectors.

Commodities and Diversification: Beyond Tech

The rally in gold and silver is another area of focus. Both metals have broken out to new highs, and Johnson sees their technical trends as strong, even if the reasons are debated:

"Both [gold and silver] have broken out. The trend is still higher. There's nothing necessarily slowing down gold or silver; they look like decent breakouts."

He stresses the importance of diversification, not just across equities but into alternative yield opportunities. Johnson points to high-dividend value stocks and even stablecoin lending as attractive, yield-rich alternatives.

Debt and Interest Rates: Looming Challenges

Johnson also addresses the mounting risk posed by the surging US national debt, which now exceeds $38 trillion:

"We're at a point where we’re truly borrowing just to pay interest. It will come to the forefront, and the bond vigilantes will return. I don't think it has to be a disaster in the next 12–24 months, but it's going to be a real issue for our children and their futures."

While he sees no immediate crisis, Johnson warns that the debt issue will eventually force itself back onto the market’s radar, potentially driving interest rates higher and challenging market stability.

Caution and Selectivity: The Way Forward

Johnson’s bottom line for investors is clear: be cautious, focus on value, and diversify.

"The market's had a strong run off the October 2022 lows and now needs a breather and rotation into value. Some of the AI trade is getting long in the tooth, and you're seeing that rotation play out. We can't have 40% of the equity market tied up in just technology—that's not healthy."

As the market enters 2026, Johnson advises investors to resist the urge to chase momentum and instead seek opportunity in undervalued sectors and prudent diversification. His pragmatic outlook may not match the euphoria of recent years, but for those seeking to protect and grow capital, his guidance couldn’t be more timely.

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