Wall Street is hedging the AI trade in 2026
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Conversations with more than a dozen strategists and investors on their 2026 outlooks reveal that Wall Street is not worried about an AI bubble, but wants to add portfolio protection just in case.
Why it matters: Hedging was not very profitable in 2025, but the mix of macro uncertainty and AI concerns next year has investors worried that skipping protection could be costly.
What they're saying: "Most years, investing is about finding ways of increasing return. This year it will be about ways of reducing risk," David Kelly, chief global strategist for asset management at JPMorgan, tells Axios.
- Wall Street broadly expects gains. Strategists in a Bloomberg survey see the S&P 500 ending 2026 around 7,269, about 6% above where it is now.
- Compared with the 80% rally in the S&P 500 since the start of 2023, a 6% gain looks measly, trailing the historic annual average gain of above 8%.
Between the lines: There is a "healthy dose of skepticism, which the companies will have to answer for," Amy Wu Silverman, the head of derivatives strategy at RBC, tells Axios.
- Silverman says a client told her he is a fully invested bear: His portfolio may read as bullish, but he stays in the market because there is "career risk" in "not being long" AI stocks.
Zoom in: Wall Street believes the AI theme is not in bubble territory yet.
- "Our analysis of past bubbles suggests the technology sector of the U.S. stock market is still on solid ground," Savita Subramanian, head of U.S. equity strategy at Bank of America, writes in a note.
- She expects double-digit earnings growth but warns of an "AI air pocket."
Follow the money: You don't fight the trend on Wall Street. Strategists are happy to ride the rally higher.
- The fourth year of any bull market suggests a continuation of prior gains, according to a note from Keith Lerner, chief investment officer at Truist.
- Global money managers, in a separate Bloomberg poll, report they are overwhelmingly "risk-on" heading into the new year.
Threat level: Strategists are watching not just for cracks in the AI rally, but also in the labor market.
- Weakness in the labor market could weigh on retail investors, who make up around a quarter of daily trading volume.
What to watch: The danger to the market in 2026, as it is rarely predictable.
- "If you're going to put together a list of all things that could blow up in your face in 2026, please leave the first line blank," Kelly says.
