The stock market looks set for another positive year, with just 18 full weeks left until 2027. Year to date, the FTSE 100 and S&P 500 are up 8.5% and 11.1%, respectively, while the tech-heavy Nasdaq-100 is beating both on 14.4%. All before dividends. The S&P 500 is on course to deliver a double-digit return in seven out of the last eight years.
However, digging deeper, it has been AI-related hardware, energy and hyperscalers driving the S&P 500 in 2026. History tells us that nearly every major technological paradigm shift over the past 200 years has followed a boom-bust cycle. In other words, there is usually intense speculative exuberance, over-investment, and an eventual market crash. It happened with the internet, and now there is AI.
Might there be a crash in 2027? I don't think one can be ruled out. The cloud computing giants are spending eye-watering sums on the AI buildout, which is fuelling record profits at AI-related hardware firms and chipmakers. But what if these hyperscalers all started aggressively reining in AI capital expenditure one after the other? Nvidia, Broadcom, Micron, and AMD make up a decent chunk of the S&P 500 now. There could be chaos.
Also, AI lab Anthropic is preparing for an IPO before 2027. The valuation could reportedly top $2trn, a record sum. Might historians look back and see this IPO as the bull market top? An AI bubble-popping event? It's possible.
On the other hand, history can be used to think that a crash won't happen next year. That's because the US mid-term elections are coming up in November. According to asset manager Hartford Funds, since 1950, the S&P 500 has delivered an average return of 15.17% in the year following mid-term elections, compared with just 7.3% on average across the other three years. Some put this down to the incumbent government prioritising pro-growth economic policies as the presidential elections get closer. This makes sense. As Bill Clinton's campaign strategist once remarked: "It's the economy, stupid".
According to this data, then, 2027 might actually be a bumper year.
Regardless of where the market is heading, one stock that looks attractive to me is Diageo (LSE:DGE). This is the FTSE 100 drinks behemoth behind brands like Johnnie Walker, Tanqueray, Guinness, and Smirnoff. The stock is down 51% over five years, reflecting
