The Only Thing in 2026

Summary

Lisa Shalett, Chief Investment Officer for Wealth Management, reviews the 2026 outlook as the AI capex boom meets policy stimulus. She argues the key unknown is whether generative AI will produce meaningful US productivity gains in 2026, citing stalled AI adoption, weak non-AI capital investment, and data center power and water constraints. She remains broadly constructive on equities but recommends diversifying away from concentrated AI productivity bets and rotating into large-cap core, quality, financials, health care, energy, rest-of-world/emerging-market equities, and 2026 private-market vintages.

• 2025 S&P 500 gained 16%, with AI ecosystem, tech, communication, and utilities driving about 70% of gains and earnings growth.
• 2026 faces high expectations: S&P 500 forward P/E near 22.5x, with profit growth forecasts of 15% in 2026 and 13% in 2027.
• Key risk is whether generative AI delivers meaningful productivity gains; without them, 210 bps margin expansion and accelerating AI capex are hard to justify.
• AI adoption has stalled at 12.5%, non-AI capital investment has stalled, and AI ecosystem margin gains are not broadening to the rest of the S&P 500.
• Data center power generation shortfalls, water shortages, and community opposition may slow deployment in 2026.
• Shalett remains broadly constructive but favors diversification, active idiosyncratic opportunities, and avoiding single-name concentration.
• She recommends taking profits in high-beta, unprofitable small-cap, micro-cap, and speculative equities and redeploying to large-cap core and quality.
• She favors AI productivity beneficiaries in financials, health care, and energy, adding rest-of-world/emerging-market equities, and planning 2026 private-market vintages.