Bigger tax refunds - up to $2,000 on average - could give stocks a boost next year

By Joy Wiltermuth

Tax-rebate checks are expected to arrive in the second quarter for consumers, but the bulk of relief from Trump's One Big Beautiful Bill Act is geared toward businesses

Wall Street expects bigger tax refunds to boost consumer spending, the economy and markets in the year ahead.

The rally in stocks could be due for another big boost next year as people start receiving tax refunds from President Donald Trump's signature tax and spending package signed into law this summer.

While touting Trump's tax cuts on Monday, White House National Economic Council Director Kevin Hassett said the typical person facing no tax on tips or overtime likely will see an extra $1,600 to $2,000 next year.

"A lot of that will come as tax refunds at the beginning of the year," Hassett said in a CNBC interview. Hassett has been viewed as a front-runner to replace Fed Chair Jerome Powell in May.

Wells Fargo Investment Institute analysts said Wednesday they foresee an estimated $517 billion in tax refunds on tap that would be crucial to "reigniting broad consumer spending" next year, as well as helping power the economy and markets.

An estimated $517 billion in tax refunds is expected from President Donald Trump's tax and spending bill in 2026.

If that estimate holds up, it would mark a bigger tax-refund year than the annual average since 2017, excluding the large 2020-'21 pandemic-stimulus years.

"We expect the nearly 44% year-over-year increase to meaningfully boost consumer spending and help the U.S. economy gather renewed momentum in 2026," wrote Jennifer Timmerman, an investment-strategy analyst at the Wells Fargo Investment Institute.

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The Wells Fargo team expects the S&P 500 index SPX to reach a 7,400-7,600 price target by the end of next year, but for the 10-year Treasury yield BX:TMUBMUSD10Y to hold in a 4% to 5% range.

The benchmark 10-year borrowing rate was at 4.15% on Wednesday, according to FactSet. The S&P 500 closed just shy of record territory, at 6,886, putting it on pace for a big 17.1% annual gain.

Bumpy start for stocks next year?

Meghan Shue, chief investment strategist at Wilmington Trust, said she expects this year's rally to continue through year's end. "I'm a little bit more cautious about the first quarter," she told MarketWatch.

After another big year for stocks in 2025, including for AI plays, Shue expects a decent about of volatility and rebalancing of portfolios to start next year, including from selling and profit-taking.

There's also the tariff question, given that many business owners, retailers and others in the supply chain may be holding off on passing through a bigger portion of their import costs to consumers during the all-important holiday shopping season.

"There could be more supply-chain pressure and more tariff price increases to come in the first quarter," Shue said.

Then in the second quarter, the picture should brighten with more certainty around tariffs and tax relief. "On the consumer side, it will come with their filing of taxes and refunds," she said, adding that on the business side - where the bulk of the tax benefits are expected - it'll be driven less by the calendar and more by incentives tied to capital expenditures.

-Joy Wiltermuth

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12-10-25 1638ET