Capital Economics sees S&P 500 peaking at 8,250 in 2026, then falling 21% by end-2027

September 14, 2026 at 03:06 AM2 min

This digest was compiled by AI from multiple sources — links to the originals are below.

Capital Economics forecasts the S&P 500 to end 2026 at 8,250, up 7.7% from Friday's close, then plunge 21% to 6,500 by the end of 2027. The firm's senior markets economist James Reilly says data are consistent with a late-stage bubble. Rockefeller International's Ruchir Sharma warns the AI bubble could pop if the 10-year Treasury yield decisively breaches 5%.

Key Facts

Capital Economics reiterates its forecast for the S&P 500 to end 2026 at 8,250, up 7.7% from Friday's close, then plunge 21% to 6,500 by the end of 2027.
The 10-year Treasury yield hit 4.97% on Friday, approaching the 5% threshold that Rockefeller International's Ruchir Sharma says would signal a new era of tighter money.
The combined free cash flow of the top AI hyperscalers is expected to turn negative in 2027.
The S&P 500's cyclically adjusted price-to-earnings ratio is close to its dotcom peak.

Bubble Indicators

James Reilly, senior markets economist at Capital Economics, wrote in a note on Thursday that most factors he considers are at or close to levels that preceded past stock market peaks. The market's cyclically adjusted price-to-earnings ratio is near its dotcom peak, and the S&P 500's valuation relative to Treasury bonds is also near dotcom extremes. Forward 12-month earnings-per-share growth for the S&P 500 is in line with the peak of the dotcom bubble. Market-cap concentration of indexes in fewer stocks is at extreme levels, a narrowness often associated with unsustainable rallies. Equity issuance is booming, with a pipeline of IPOs and follow-on offerings that in the past has signaled a bubble's end is months away, not years.

Treasury Yield Threshold

Ruchir Sharma, chairman of Rockefeller International, warned in a Financial Times op-ed that the AI bubble could pop when the 10-year Treasury yield decisively breaches 5%. The 10-year yield hit 4.97% on Friday, just below the 5% upper end of its range since the dotcom era. Sharma said a breach of 5% would signal the start of a new era of tighter money, making AI mega projects harder to fund. Hyperscalers would likely issue fewer bonds to finance spending and have more trouble issuing new equity, as yields above 5% have historically been a headwind for stocks. Yields topping 5% would start to approach nominal GDP growth, making the national debt even more unsustainable, Sharma noted.