Capital Economics warns that the AI bubble will burst in 2026

Capital Economics has warned that the AI-fueled stock market bubble could burst in 2026. A stock market bubble, fueled by investor excitement about AI, will propel the S&P 500 to a high of 6,500 points by 2025. But starting in 2026, as Intrerest Rate and inflation rise begin to weigh on equity valuations, equity market pump should fall sharply, "Ultimately, we expect equity returns over the next 10 years to be lower than in the previous decade." In our view, American exceptionalism could come to an end in the coming years. "Capital Economics predicts that the average annual return of the U.S. stock market between now and the end of 2033 will be just 4.3%, well below the average annual return of 13.1% over the past 10 years.