The S&P 500 is projected to struggle with negative returns in 2026, according to a warning from GMO.
By William Edwards (https://www.businessinsider.com/author/william-edwards)
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Date: 2025-12-26T10:30:02.442Z
- Ben Inker from GMO foresees weak returns for the S&P 500, attributing this to the high concentration of investments in costly AI stocks.
- He anticipates a market shift away from overpriced AI shares toward more reasonably priced sectors in 2026.
- Inker is particularly optimistic about investments in Japanese small-cap stocks and European value stocks, preferring them over US growth stocks.
If you are acquainted with GMO, the investment management firm co-founded by the renowned value investor Jeremy Grantham (https://www.businessinsider.com/jeremy-grantham-warns-us-stock-market-crash-downside-outlook-2023-12), it’s likely not surprising to hear their tendency toward pessimistic forecasts regarding the overall market.
Therefore, it may not come as a shock that Ben Inker (https://www.businessinsider.com/stock-market-crash-bubble-non-ai-picks-where-to-invest-2025-11), who serves as co-head of asset allocation at GMO, is predicting lackluster returns for the S&P 500, particularly due to the overwhelming presence of pricey AI stocks in the index.
However, Inker does not foresee a dramatic crash akin to previous warnings from his firm. Instead, he suggests that AI stocks might start to underperform, prompting investors to pivot towards other segments of the market (https://www.businessinsider.com/stock-market-rotation-analysis-investor-strategy-implications-non-tech-leaders-2025-12). This shift could exert downward pressure on the overall index, a trend that has been gradually manifesting over recent months.
In his own words, Inker shared with Business Insider, "Our best guess is that in 2026 the S&P is more likely to be down than up. We are not forecasting a collapse; rather, we expect to see a rotation where the AI stocks will be adversely affected, and they constitute a significant portion of the S&P."
He added, "There are still numerous other stocks available at attractive prices, which may experience growth. Therefore, we are estimating single-digit percentage losses for the S&P."
One key reason Inker remains skeptical about the existence of a massive bubble is the observation that speculation appears largely confined to the AI sector.
"The situation is not as extreme as what we witnessed in 2000, and it hasn’t permeated the entire market. A significant issue during bubbles is that, similar to 2008, while no single asset was as overpriced as internet stocks were back in 2000, all risk assets were generally overvalued: stocks, credit, real estate—everything was inflated. Today, while AI stocks and US growth stocks are indeed overvalued, the same cannot be said for most other sectors," he explained.
Despite the challenges within the S&P 500, Inker highlights two areas he finds promising right now: Japanese small-cap stocks and European value stocks.
- For more insights on investing, check out (https://www.businessinsider.com/category/investing) * Explore S&P 500 trends (https://www.businessinsider.com/category/s-p-500)
What are your thoughts on these predictions? Do you agree with Inker's outlook, or do you see opportunities elsewhere? Share your views in the comments below!
