Friday’s selloff suggests that investors are taking some profits in tech stocks and reallocating money into value-oriented stocks. This rotation is not surprising, especially as we head into year-end. We still expect tech stocks to lead the market in 2026 thanks to the promise of AI.
With two weeks remaining in 2025, we expect the stock market to inch higher, as we have moved past a number of recent hurdles including the most recent Fed decision and outlook, earnings season, and the release of delayed economic data points, which showed that the economy is still chugging along just fine.
We remind investors that historically January is an important month for stocks, and the market performance of January tends to set the market’s tone for the rest of the year. While it isn’t a perfect science, negative market years often also have negative January returns.
We believe there is likely more room to run in this bull market, especially since the artificial intelligence story is still in its early innings, and we are only first starting to see the earnings and productivity gains that are resulting from AI. That dynamic will likely continue to play itself out in the coming years, as AI models become more advanced.
Thursday’s delayed CPI report provides a much needed update on how inflation has fared in recent months. The market is still hungry for inflation even as it appears that the Fed is more focused on the labor market at this time.
The big question for 2026 is whether or not investors will remain comfortable with the elevated valuations in big tech and AI stocks. While AI has tremendous promise, the valuations in many of these stocks are trading as if all of the AI productivity has been delivered currently.
