Capital Economics Says S&P 500 AI Rally Nearing End, Sees 8% Upside This Year

According to CNBC, Capital Economics said the S&P 500's rally may have more room to run this year, but its medium-term outlook looks weak as market froth builds. Senior market economist James Reilly said most indicators suggest the AI equity boom is nearing an end, and the firm said its year-end 2026 S&P 500 forecast has remained above consensus. Reilly said he tracks eight bubble indicators, including valuations, earnings, index concentration, equity issuance and foreign interest in U.S. stocks, and noted that some are already at or near levels seen before previous market peaks. He said earnings are the biggest warning sign, with S&P 500 earnings growth expectations near dot-com bubble highs and long-term EPS growth forecasts at a record. Reilly also said index concentration is near dot-com-era extremes, net equity issuance has turned positive and foreign ownership of U.S. stocks is at a record high. He wrote that the S&P 500 could rise from around 7,650 now to 8,250 by end-2026, before falling back to 6,500 by end-2027, implying 8% upside this year and a 21% decline in 2027.