Following three successive years of double-digit increases, the S&P 500 is poised for what a strategist describes as “a boring, normal year. We think the bull run continues, but it’s not going to be the stampede” Jay Woods stated. Woods anticipates a rise in the S&P 500 of between 3% and 5% over the next year, projecting a finish in the 7,200s by the end of 2026. That represents one of the more pessimistic projections, where the median year-end target for the S&P 500 is approximately 7,650, based on a survey. Mega-cap technology companies have been the primary drivers of the stock market’s ascent over the last three years. However, as apprehensions regarding AI expenditures increase, a growing number of analysts are cautioning that the tech sector’s unyielding ascent may be at risk in the coming year.

Woods attributes some of the benchmark index’s anticipated modest returns for the upcoming year to a shift in market leadership, a transition he notes is already in progress. “We’ve observed a broadening of this market,” he stated. “The continuation of that broadening is anticipated.” For the third consecutive year, technology stocks propelled the market’s gains in 2025, driven by the accelerating AI boom. Big Tech is projected to allocate approximately $400 billion towards infrastructure this year, with a significant portion earmarked for AI, an increase from around $250 billion in the previous year. This expenditure stimulated sales expansion and stock appreciation for the producers of AI’s “pick and shovel,” a category that encompasses the technology, communications, industrials, and utilities sectors.

However, recent trends indicate that AI investments have turned into a liability for the hyperscalers—Microsoft, Alphabet, Amazon, Meta, and Oracle—raising concerns among investors about their ability to achieve satisfactory returns on these substantial expenditures. Woods anticipates that these concerns will persist in exerting pressure on the shares of technology giants, whose market capitalizations, reaching into the trillions, render them the most significant stocks within the capitalization-weighted S&P 500. “There will be both beneficiaries and those left behind in the technology sector,” Woods stated. “It’s not that AI is elevating all equities; consequently, certain mega-cap stocks might experience a brief hiatus.” Woods anticipates that more unremarkable sectors—like industrials, transportation, and financials—will take the lead in the market next year, as investors favor their “slow, steady growth.”

Woods anticipates a “boring, normal year” regarding stock leadership; however, he asserts that the journey to next December will be anything but mundane. Anticipation surrounding the midterm elections in November is likely to heighten market volatility, particularly in light of a potential significant shift in policy from the Federal Reserve, which is set to appoint a new leader in May. Investors may face an unexpected challenge early in the year as the Supreme Court deliberates on President Donald Trump’s hallmark “Liberation Day” tariffs. “If they deem tariffs illegal … it’s gonna cause uncertainty,” which contributed to market fluctuations during a significant portion of the first half of 2025, according to Woods.