Capital Economics Predicts S&P 500 to Surge Then Crash in 2027

Research firm sees index rising to 8,000 before plunging to 7,000 as tech valuations become "unsustainable"

Published on Feb. 11, 2026

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Capital Economics, a research firm, predicts the S&P 500 will rally over the next year, potentially reaching as high as 8,000, before facing a steep correction of around 13% down to 7,000 in 2027. The firm believes tech valuations have become too stretched and will eventually "collapse under their own weight" as investors reassess the sector.

Why it matters

This forecast highlights the potential risks in the current AI-fueled stock market rally, with concerns that valuations in the tech sector may have become overheated and unsustainable. A major market correction could have significant implications for investors and the broader economy.

The details

Capital Economics believes the S&P 500 will surge in the coming year, driven by continued enthusiasm for AI technology, before facing a double-digit correction. The firm cites several factors that could trigger the downturn, including overstretched valuations, the potential for a rapid slowdown in tech earnings growth, broader economic slowdown, competition from China's AI innovations, and geopolitical risks.

  • Capital Economics expects the S&P 500 to rise as high as 8,000 in 2026.
  • The firm predicts the index will then fall to 7,000 in 2027, a drop of around 13%.

The players

Capital Economics

A research firm that provides economic analysis and forecasts.

Jennifer McKeown

An economist at Capital Economics.

William Jackson

An economist at Capital Economics.

Thomas Mathews

The head of markets at Capital Economics.

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What they’re saying

“A more plausible scenario is that the stock market 'collapses under its own weight' as investors reassess stretched valuations for major tech firms while still believing in AI's long-term benefits for the real economy.”

— Jennifer McKeown, Economist (Capital Economics)

“We suspect that as the rally progresses, a rise in valuations is more likely than not. Indeed, even though they are, in our view, not yet excessive, it wouldn't be surprising if investors' enthusiasm for AI tech were to push valuations to a level perhaps above what might be sustainable in the long run.”

— Thomas Mathews, Head of Markets (Capital Economics)

The takeaway

This forecast from Capital Economics underscores the potential risks in the current AI-driven stock market rally, with concerns that tech valuations may have become unsustainable. Investors should closely monitor the market and be prepared for the possibility of a significant correction in the coming years.