The year 2025 began with post-election optimism and expectations of a strong first quarter. Instead, markets were hit by the rise of low-cost AI initiatives from China, the adverse impact on the U.S. Big Tech, Trump tariffs, sticky inflation, and persistently high interest rates. Stabilization in the market returned in the month of May after a tariff-led, turbulent April.
Market euphoria started to solidify from midyear, thanks to easing trade tensions. There have been three Fed rate cuts this year, with the first action starting in September. That momentum faded suddenly when the longest U.S. government shutdown brought the fourth-quarter economic progress to a halt, and overvaluation concerns intensified in the AI space.
Still, with all those worries, Wall Street has put up an upbeat show in 2025. SPDR S&P 500 ETF Trust SPY has jumped 18.1% year to date (as of Dec. 26, 2025). The Nasdaq-100-heavy ETF Invesco QQQ Trust, Series 1 QQQ has surged 22.3%, and the SPDR Dow Jones Industrial Average ETF Trust DIA has advanced 15% in the year-to-date frame.
Investors enter 2026 with notable concerns. While GDP growth has accelerated and inflation has eased, the U.S. economy is increasingly showing signs of a “K-shaped” recovery, as mentioned in a Yahoo Finance article. Higher-income households continue to drive spending and wealth gains, while labor market concerns remain.
Lingering worries include heavy spending in the AI space, rich equity valuations, mounting risks in private credit and corporate debt, and a host of geopolitical uncertainties – from the war in Ukraine and energy market tensions to still-uncertain U.S. trade policies. Most central banks will likely hold off on monetary policy easing in the near term. The Fed is unlikely to cut rates at the upcoming meeting and is expected to follow a data-driven approach thereafter.
Against this backdrop, below we make a few investment predictions related to the exchange-traded fund (ETF) arena for the year 2026.
Major Wall Street firms remain optimistic about the year ahead. The S&P 500 closed December 26 at 6,929.94. JPMorgan Chase and HSBC forecast the index reaching 7,500 by the end of 2026, while Morgan Stanley and Deutsche Bank project even stronger gains, with targets of 7,800 and 8,000, respectively, as quoted on Yahoo Finance.
Elevated multiples reflecting expectations for above-trend earnings growth, an AI-led capital spending boom, rising shareholder payouts, and easier fiscal policy are likely to drive stock market gains ahead, said JPMorgan’s chief equity strategist Dubravko Lakos-Bujas, as quoted on Yahoo Finance.
Such optimism puts focus on S&P 500-based ETFs including Vanguard S&P 500 ETF VOO , iShares Core S&P 500 ETF (IVV) and SPDR S&P 500 ETF Trust SPY (read: S&P 500 to Hit At Least 7,500-Mark in 2026? ETFs in Focus).
With AI overvaluation fears clouding investors’ sentiment, the S&P 500 offers a balanced way to stay invested. While Big Tech still accounts for roughly a quarter of the index, the remaining exposure covers multiple sectors.
Commodities also enjoyed a standout year in 2025. Gold and silver surged to all-time highs as investors sought safety,while copper reached record levels amid supply chain disruptions and tariff-related uncertainty. Industrial usage also played its role in driving silver, platinum, and palladium higher in 2025. We expect the metal boom to thrive in 2026 (read: Will 2026 Be a Year of Silver & Copper ETFs?).
Agreed, after a staggering 2025, investors should be cautious about further gains. But then, fundamentals are strong for industrial metals. Meanwhile, China, the world’s third-largest silver mining country, is expected to restrict exports starting in January (as mentioned in Yahoo Finance), adding to supply crunch in the red-hot AI industry.
ETFs like iShares Silver Trust SLV, United States Copper ETF CPER, GraniteShares Platinum Trust PLTM and abrdn Physical Palladium Shares ETF PALL are thus in focus currently.
After years of rate hikes and volatility, banks are entering a sweeter spot. Falling benchmark rates, a potential yield-curve steepening, strong deal activity, cheaper valuations and blockbuster earnings are setting the stage for bank stocks to shine in 2026, with ETFs like Invesco KBW Bank ETF KBWB already outpacing the broader market.
KBWB (up 9% over the past month) beat the S&P 500 (up about 1.5%) by a wide margin (read: Will 2026 be a Great Year for Banks? ETFs in Focus).
Solar is regaining its shine as the AI-driven power boom lifts demand for cheap, reliable energy. Costs for photovoltaic panels have fallen sharply over the last decade, while battery storage prices are also falling (per the International Renewable Energy Agency), making solar energy a cheaper option.
Apart from falling panel and battery costs, easing policy fears (as mentioned on Investopedia) and attractive valuations have sparked a sharp rebound, with solar and clean-energy ETFs like TAN and PBW delivering outsized gains in recent months. Invesco Solar ETF TAN and Invesco WilderHill Clean Energy ETF PBW have surged 48.4% and 60% over the past six months (as of Dec. 26, 2025).
International markets quietly outshone Wall Street in 2025 as tech concentration risks and lofty U.S. valuations weighed on domestic indexes. Cheaper valuations, broader sector diversification, and aggressive stimulus across Europe and Asia powered strong gains in ETFs like AIA, EZU and VEA, highlighting why global equities delivered a clear edge over U.S. markets. We do not expect the trend to reverse in 2026 (read: Top-Performing International ETFs of 2025).
AI investments will likely remain strong in 2026 as the tech boom isn’t over yet.Bank of America analyst Vivek Arya projects a 30% year-over-year jump in global semiconductor sales, pushing the industry past the historic $1 trillion annual revenue mark in 2026, as quoted on Yahoo Finance. First Trust Nasdaq Semiconductor ETF FTXL, and WisdomTree Cloud Computing Fund WCLD can reap benefits out of this boom.
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Invesco QQQ (QQQ): ETF Research Reports
SPDR S&P 500 ETF (SPY): ETF Research Reports
SPDR Dow Jones Industrial Average ETF (DIA): ETF Research Reports
Invesco Solar ETF (TAN): ETF Research Reports
iShares Silver Trust (SLV): ETF Research Reports
Invesco WilderHill Clean Energy ETF (PBW): ETF Research Reports
Vanguard S&P 500 ETF (VOO): ETF Research Reports
Invesco KBW Bank ETF (KBWB): ETF Research Reports
abrdn Physical Palladium Shares ETF (PALL): ETF Research Reports
First Trust NASDAQ Semiconductor ETF (FTXL): ETF Research Reports
WisdomTree Cloud Computing ETF (WCLD): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).
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