As 2025 draws to a close, Wall Street generally expects the US stock market to continue its bull run in 2026. However, a very small number of institutions hold a cautious view on the future trend of the US stock market, including GMO, the asset management company of legendary investor Jeremy Grantham.
Ben Inker, co-head of asset allocation at GMO, predicts that due to the high concentration of funds in expensive artificial intelligence... (AI) stocks may not deliver satisfactory returns for the S&P 500 in the future, and could even record negative returns in 2026 .
It is worth noting that although GMO's prediction goes against the mainstream view on Wall Street, it is not surprising, as the firm has historically tended to issue bearish forecasts for the overall market.
However, Inker does not believe that the US stock market will experience the kind of massive crash that the institution has warned of in the past. On the contrary, he believes that the AI sector may begin to underperform the market, and investors may turn to other sectors of the market, which would drag down the overall index —a market dynamic that has been exhibiting periodically over the past few months.
“Our assessment is that the probability of the S&P 500 falling in 2026 is greater than that of rising,” Inker said in an interview. “We are not predicting a market crash, but we expect that we will largely see a rotation: AI stocks will be hit hard, and they obviously have a large weighting in the S&P 500.”
He continued, "But there are many other stocks that are indeed quite cheap and are likely to rise. So we speculate that the S&P 500 will see a single-digit percentage drop."
One reason Inker doesn't believe the current market is in a super bubble is that speculative activity seems to be limited to the AI trading sector.
“The current situation is far less extreme than in 2000, and it hasn’t spread to all assets. One problem that can arise during a bubble is, like in 2008—no asset was as expensive as it was during the dot-com bubble of 2000, but all risky assets globally were overvalued: stocks were overvalued, credit was overvalued, real estate was overvalued, everything was overvalued,” he said. “Right now, only AI stocks and US growth stocks are overvalued, but other assets are not as severely overvalued.”
While there are investment opportunities in non-AI sectors within the S&P 500, Inker's two most favored investment targets are Japanese small-cap stocks and European value stocks .
U.S. stocks were nearly flat in light trading after Christmas on Friday, lacking any clear drivers for market direction. The three major indexes closed slightly lower, ending a five-day winning streak, but still recorded gains for the week. The S&P 500 fell 2.11 points, or 0.03%, to 6929.94.
Major Wall Street investment banks have projected a target price of 7,100-8,100 for the S&P 500 by the end of 2026, with an average target price of approximately 7,500, representing a potential upside of nearly 10%.
(Article source: CLS)
