One Thing's For Sure About 2026: We're Headed for Uncertainty
AI is an open question, biotech's surge could see some profit-taking, and the economy faces many questions. Let's take a look at what could be ahead.
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Investors are heading toward their third-straight year of out-sized gains in the market. Of course, most of this performance has been powered by the Magnificent Seven tech star stocks, which continue to ride the revolutionary birth and implementation of artificial intelligence, or AI. The huge surge in tech spending to build out AI infrastructure has been a core driver of economic growth, one of few consistent economic engines here in 2025.
My view continues to be that the overall market is overbought, and equities are due for at least some consolidation of their gains as we get into the new year. In that context, here is what I am monitoring as we get ready to commence trading in 2026.
Some dents have started to develop in the AI narrative in recent months -- primarily around the large amounts of debt being taken on by the likes of Oracle (ORCL) and Meta Platforms (META) to fund these AI investments. Oracle dropped an additional 6% in trading on Wednesday as new uncertainty arose around the financing of the $10 billion AI data center in plans to construct in Michigan.
One of the core linchpins around this AI-related rise in tech spending has been OpenAI. The company has made just over $1.4 trillion in commitments for future computing power, including $300 billion from Oracle. But OpenAI is bleeding cash and will have revenues in 2025 around 1% of those future commitments. I will be watching to see if OpenAI can raise a large amount of new capital to fund its next couple of years of operating budgets, either via an initial public offering or major investment from another entity like a sovereign wealth fund. If that capital raising event occurs successfully, it will be a huge positive for the markets.
Biotech has seen a massive surge since its lows in the first half of April, following the tariff announcements. Since then, the State Street SPDR S&P Biotech ETF (XBI) is up just over 70%. The sector has been boosted significantly by a notable uptick in M&A activity across the industry since mid-September. Unless deal volume continues to be elevated and more acquisitions are announced over the next few weeks, however, I could see some profit-taking after the big JP Morgan Healthcare conference in San Francisco. This event concludes on Jan. 15. If no significant new biotech buyouts happen between now and then, I could see some substantial weakening across the sector. It would not be the first time this pattern has played out in the biotech space.
Yesterday, a better-than-expected consumer price index reading boosted the markets in trading. But given the Bureau of Labor Statistics was not operating during the recent government shut down, this is at best a guesstimate. It should be taken with a huge grain of salt. It should also be noted that the nation could face another government shutdown at the end of January if the two parties can’t reach a new funding agreement, primarily around health care. Avoiding another round of Kabuki theater would be a positive for the country and the markets. Whether this will happen given the current level of political acrimony is another matter altogether.
At the time of publication, Jensen was long XBI.
