Why the bull market is likely to continue

It’s tough to make predictions, especially about the future. —Yogi Berra

Like most of Yogi’s observations, this one is absurdly obvious.

While investors should always be cautious, those daunted by this comical truism’s implications for their assets probably shouldn’t be in the stock market.

Anticipation, informed by identifying positive indications and emerging sustainable trends, is the whole point in the ever-forward-looking equities market, as buying and holding stocks is by definition investing in future outcomes.

Now that 2025 has closed as a great year, there abounds the usual speculation by market bears this year will be a much weaker one. But that’s what they predicted for 2025 after a great 2024.

Tariff tantrum

Even though the first few months of 2025 were rough—with the market declining in February and then plummeting nearly 20% in early April from President Trump’s tariff tantrum—the S&P 500 finished the year up about 18%. Though a disproportionate amount of this performance has come from Magnificent Seven, the huge tech stocks that dominate the index, many of the other 493 (in other sectors) were doing better at year’s end.

The strong chain yoking recent good years together is the bull market. This bull is still robust, nourished by structural long-term economic factors that remain firmly in place.

Predicting a far weaker year in 2026 is tantamount to forecasting fatigue for the bull—the beginning of its end. But there are abundant indications that the bull isn’t about to stop running.

Here are two of the current bearish refrains for the new year and reasons why they’ll likely prove inaccurate.

“The bull market is threatened by the slowing economy.”

The economy has gradually slowed a bit in recent months, with a decrease in the rate of new job creation. Yet, before this slowing, the economy was growing at a speed hard to sustain indefinitely. And the current, slower economy is by no means slow or weak by historical standards.

Though America has been creating fewer jobs, layoffs are few and far between, producing a low-hire/low-fire economy. And productivity remains brisk, which reduces the tendency for growth to fuel inflation.

Further, the Federal Reserve is projecting an increase in gross domestic product for 2026, reflecting anticipated continued strong corporate earnings, the stock market’s lifeblood.

Despite all this, some nattering nabobs of negativism (as Vice President Spiro Agnew said) can’t resist their tendency to haul out the R-word.

Yet there are many signs that recession is nowhere on the horizon or even beneath it: Acceleration of orders for non-defense-related capital goods, a continued low level of unemployment claims and relatively low stock volatility at year’s end all point to the strong economic growth, hence the Fed’s projection.

At the same time, inflation is continuing to decline, supporting the case for stock-friendly rate cuts by the Federal Reserve.

Investment in AI-focused tech stocks has created a dangerous market bubble that poses tremendous risk for U.S. equity investors in 2026.

Bears fear that continued brisk market investment in mega-cap tech companies—those spending hugely on infrastructure for artificial intelligence (known as AI hyperscaling)—poses a high risk of crashing the entire U.S. market.

They invoke the notorious market bubble of the late 1990s, which culminated with shares of overvalued dot-com companies plummeting like a raptor when the bubble burst in early 2000.

Never mind that, unlike today’s market, a lot of these companies operated on what former Fed Chairman Alan Greenspan famously called irrational exuberance — unrealistic investor sentiment concerning early internet companies. By irrational, Greenspan meant faith with no financial foundation: Even though many of these dot-coms had no profits and scant revenue, investors kept buying shares, jacking up their valuations to ethereal levels.

The current market is different. While some of the smaller AI-centric tech companies may be overextended from hyper-scaling, today’s highly profitable mega-cap tech companies (survivors of the ’90s) are funding these capital expenditures with deep rivers of free cash flow.

Bloomberg Intelligence analyst Mandeep Singh believes that investor wariness will probably increase, weighing on the growth of these stocks, after the hyper-scaling starts to cut too deeply into free cash. But, he adds, this might not happen until 2027.

And if and when this does happen, behemoths like Microsoft, Google and Amazon certainly won’t tank. They would get hurt but not enough to tear the overall market asunder, as current doomsayers fear.

Moreover, contrary to the impression many individual investors may be getting, such stocks’ valuations (price earnings (PE) ratios) aren’t nearly as high as those of tech leaders in the late ’90s. Actually, they’re about 25% lower.

And even if AI-focused mega-cap tech companies did pose a serious threat, investors don’t have to own them or funds that hold shares. They can avoid these stocks and funds that track the S&P 500, the cap-weighted index that’s dominated by the Magnificent Seven, instead choosing equal-weighted S&P 500 funds, in which all companies get pretty much the same weight regardless of size. Or they could own no S&P 500 funds at all, instead selecting funds tracking specific (non-tech) sectors.

Excess supply creating demand

History suggests that overbuilding and over-investment in AI may not turn out to be widely problematic.

Many forecasting overall market doom from AI may be failing to see it in the context of the now-30-plus-year-old digital revolution, which started with companies including Apple, Microsoft, Google and Oracle, among others. Though AI has become something of a knee-jerk investing theme for many, this technology will likely ultimately be highly impactful, changing workforces and creating new industries.

The bad rap AI is getting from market bears involves their belief that mega-cap tech companies’ colossal spending on infrastructure (including data centers requiring abundant advanced semiconductors) is overdone and may not eventually generate sufficient profits—or, at least, not soon enough.

Yet Howard Marks, widely known co-chairman of Oaktree, a large global alternative asset management firm, sheds historical light on AI in a white paper on the firm’s website. He points out that excessive infrastructure development has been par for the course in previous industrial revolutions, including railroads and electricity, which paid off handsomely for many companies and their investors.

Further, Marks writes, excess takes care of itself because it actually fuels demand: “There’s a consistent history of transformational technologies generating excessive enthusiasm and investment, resulting in more infrastructure than is needed and asset prices that prove to have been too high.”

But he adds: “The excesses accelerate the adoption of the technology in a way that wouldn’t occur in their absence. The common word for these excesses is ‘bubbles.’”

Such is the nature of industrial revolutions ushered in by new technology, which is pretty much all of them.

Renowned market economist Ed Yardeni suggests it’s pointless to debate whether an AI bubble exists because if enough people think it does, the problem will take care of itself as investors buy other sectors, thus causing market performance to broaden from tech. This broadening, already underway in recent months, will probably continue, driving the market along nicely this year.

So ironically, “bubblenoia” will inevitably take some air out of big tech stocks as investors diversify their equity portfolios away from concentrated AI risk.

Accordingly, Yardeni predicts higher returns in 2026 for what he calls “the Impressive 493” stocks of the S&P 500. As usual, Yardeni is probably right, auguring not only a solid year for returns but also a more interesting one.

The first year of the second quarter of the 21^st century will probably be one when more sectors shine. Big tech is by no means going away, but it will probably have to share the limelight – and more investor dollars—with more companies across the market.

Dave Sheaff Gilreath, CFP,^® is a Partner Advisor at Sheaff Brock Investment Advisors, powered by Allworth Financial LP, an investment advisory firm registered with the SEC. Investments mentioned in this article may be held by Allworth Financial, affiliates or related persons.