Markets have delivered another strong year in 2026, with the FTSE 100 up 8.5% and the S&P 500 gaining 11.1% year to date, both before dividends.
The tech-heavy Nasdaq-100 has outpaced both indices, posting a 14.4% gain as artificial intelligence enthusiasm continues to drive investor appetite across global markets.
The S&P 500 is now on course to deliver a double-digit return in seven out of the last eight years, an extraordinary run by any historical measure.
Driving much of that performance in 2026 has been AI-related hardware, energy infrastructure, and hyperscalers, which have collectively powered gains across the broader index.
History, however, offers a cautionary note, as nearly every major technological paradigm shift over the past 200 years has followed a familiar boom-bust cycle of speculation, over-investment, and eventual collapse.
The internet bubble remains the most vivid recent example, and analysts are increasingly asking whether artificial intelligence could follow a similar trajectory heading into 2027.
One scenario that could trigger turbulence is a coordinated pullback in AI capital expenditure among cloud computing giants, which would have an outsized impact given how much weight firms like Nvidia, Broadcom, Micron, and AMD now carry in the S&P 500.
Adding to the speculative atmosphere, AI lab Anthropic is reportedly preparing for an IPO ahead of 2027, with its valuation potentially topping $2 trillion, which would represent a record sum for a technology listing.
Some market observers have raised the question of whether such a landmark IPO could mark the top of the current bull market and serve as a catalyst for an AI bubble correction.
On the other side of the argument, historical data from asset manager Hartford Funds offers a more optimistic outlook for 2027, showing that since 1950, the S&P 500 has returned an average of 15.17% in the year following US mid-term elections.
That compares with an average return of just 7.3% across the other three years of a presidential cycle, a gap that supporters attribute to incumbent governments prioritising pro-growth economic policies as the next election approaches.
As Bill Clinton’s campaign strategist once remarked: “It’s the economy, stupid,” a phrase that continues to resonate with those who believe political incentives will keep markets buoyant through 2027.
For investors looking beyond the macro debate, Diageo (LSE: DGE) has emerged as a potential recovery play among UK-listed stocks, despite its shares falling 51% over the past five years.
The FTSE 100 drinks giant, which owns brands including Johnnie Walker, Tanqueray, Guinness, and Smirnoff, has faced sustained pressure from the cost-of-living crisis and shifting drinking habits among younger consumers, particularly in North America.
Turnaround specialist Dave Lewis, in his role as CEO, has outlined plans to save $1 billion in costs, improve the company’s operating framework, and sell non-core assets in order to strengthen Diageo’s balance sheet.
The company is now targeting mid-single-digit growth in organic operating profit over the medium term, with earnings per share growth expected to exceed that figure, while focusing resources on fast-growing categories such as Guinness and canned cocktails.
With shares trading at a significant discount to historical levels, a 2.7% dividend yield, and a credible restructuring plan in place, Diageo presents an interesting case for investors with a longer-term view on recovery.