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Can S&P 500 Sustain Double-Digit Winning Streak in 2026? ETFs in Focus
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Key Takeaways
After 3 strong years, S&P 500 faces slowing returns amid high valuations and AI bubble risks.
Fed uncertainty and inflation fears could revive gold's appeal after its early-2026 dip.
Despite AI cost concerns, tech momentum remains strong, keeping XLK in investors' spotlight.
As the market heads into 2026, the S&P 500 is coming off a third straight year of returns well above its long-term annual average of roughly 10%. The index is up more than 14% over the past one year and has lost 0.3% so far this year (as of Jan. 2, 2026). Last year recorded a solid performance, though notably below the gains of over 23% seen in each of the prior two years, as quoted on Yahoo Finance.
Despite elevated valuations and growing concerns about an artificial intelligence (AI)–led bubble, investor optimism has largely remained intact. Still, some market watchers fear the rally may be running out of steam, increasing the risk of a meaningful correction, given expensive valuations, AI bubble concerns and circular financing in the AI space.
While another positive year is possible in 2026, returns may continue to slow, and the overall market direction could hinge on few factors.
Fed Leadership & Inflation Worries
Federal Reserve Chair Jerome Powell’s term is set to end in May 2026, introducing a factor of uncertainty into markets. President Donald Trump has openly criticized Powell in the past, particularly for not cutting interest rates more aggressively.
With President Trump being a proponent of lower rates, we might see the next Fed chair favoring additional rate cuts next year, much higher than earlier expectations. Under Powell, monetary policy has been largely data-driven, with a strong focus on controlling inflation.
However, if we see the appointment of a dovish Fed chair in 2026, inflation worries could resurface in the market and hurt several asset classes. Renewed inflation fears could prompt capital to flow out of equities, increasing volatility. With tariffs still weighing on consumer prices, investors have multiple reasons to think about inflation.
Inflation played a major role in the last bear market, when the S&P 500 dropped more than 19% in 2022, as mentioned in the above-mentioned Yahoo Finance article. If such a situation at all arises, inflation-hedging assets like gold may flex its muscle further in 2026.
Gold bullion-based exchange-traded fund (ETF) SPDR Gold Trust (GLD - Free Report) gained 63.8% over the past one year (as of Jan. 2, 2026) and has lost 4.4% so far this year. However, this year-early slump in gold may reverse if inflationary pressure rises in mid of 2026.
Buffett Indicator Showing Red Alarm
One of Warren Buffett’s most closely watched valuation tools is the so-called “Buffett Indicator,” which divides the Wilshire 5000 Index—often viewed as a proxy for the total U.S. stock market—by annual U.S. GDP.
Today, the Buffett Indicator is flashing levels never seen before. The reading suggests stocks may be overdue for a healthy pullback in early 2026, ,” as quoted in a Yahoo Finnce article. According to data from GuruFocus, the indicator currently stands at about 221.4%, up roughly 22% since April 30, as quoted on the same article.
Another Yahoo Finance article revealed that in a 2001 reflection on the dot-com bubble bust, he offered a simple guide: “If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you. If the ratio approaches 200% — as it did in 1999 and a part of 2000 — you are playing with fire.”
AI Boom
Some level of market pullback in 2026 appears likely, in any case. The severity of that downturn may depend on how the AI world evolves and positions itself. Revenues from AI are rising fast as more customers begin paying for AI services.
However, income growth still falls far short of covering the staggering scale of investment being made in the sector. Spending on AI is estimated to have reached $400 billion (£297 billion) in 2025, with even higher outlays expected over the next year, per an article published on Gurdian.
State Street Technology Select Sector SPDR ETF (XLK - Free Report) gained about 20.9% over the past one year (as of Jan. 2, 2026) despite all the AI-related overvaluation worries. We expect the winning momentum to continue in the coming days.
Note that AI giant NVIDIA (NVDA - Free Report) unveiled its next-generation Vera Rubin superchip at CES 2026 in Las Vegas on Monday. The chip is part of Nvidia’s newly branded Rubin platform, which consists of six interconnected chips. Meanwhile, AMD (AMD) CEO Lisa Su used her CES 2026 keynote to introduce the company’s upcoming AI data center platform, offering the first glimpse of the Helios system and outlining its underlying design. Such initiatives point to the fact that the AI and chip boom will continue to rule 2026. VanEck Semiconductor ETF (SMH - Free Report) has added 2.3% so far this year.
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Can S&P 500 Sustain Double-Digit Winning Streak in 2026? ETFs in Focus
Key Takeaways
As the market heads into 2026, the S&P 500 is coming off a third straight year of returns well above its long-term annual average of roughly 10%. The index is up more than 14% over the past one year and has lost 0.3% so far this year (as of Jan. 2, 2026). Last year recorded a solid performance, though notably below the gains of over 23% seen in each of the prior two years, as quoted on Yahoo Finance.
Despite elevated valuations and growing concerns about an artificial intelligence (AI)–led bubble, investor optimism has largely remained intact. Still, some market watchers fear the rally may be running out of steam, increasing the risk of a meaningful correction, given expensive valuations, AI bubble concerns and circular financing in the AI space.
While another positive year is possible in 2026, returns may continue to slow, and the overall market direction could hinge on few factors.
Fed Leadership & Inflation Worries
Federal Reserve Chair Jerome Powell’s term is set to end in May 2026, introducing a factor of uncertainty into markets. President Donald Trump has openly criticized Powell in the past, particularly for not cutting interest rates more aggressively.
With President Trump being a proponent of lower rates, we might see the next Fed chair favoring additional rate cuts next year, much higher than earlier expectations. Under Powell, monetary policy has been largely data-driven, with a strong focus on controlling inflation.
However, if we see the appointment of a dovish Fed chair in 2026, inflation worries could resurface in the market and hurt several asset classes. Renewed inflation fears could prompt capital to flow out of equities, increasing volatility. With tariffs still weighing on consumer prices, investors have multiple reasons to think about inflation.
Inflation played a major role in the last bear market, when the S&P 500 dropped more than 19% in 2022, as mentioned in the above-mentioned Yahoo Finance article. If such a situation at all arises, inflation-hedging assets like gold may flex its muscle further in 2026.
Gold bullion-based exchange-traded fund (ETF) SPDR Gold Trust (GLD - Free Report) gained 63.8% over the past one year (as of Jan. 2, 2026) and has lost 4.4% so far this year. However, this year-early slump in gold may reverse if inflationary pressure rises in mid of 2026.
Buffett Indicator Showing Red Alarm
One of Warren Buffett’s most closely watched valuation tools is the so-called “Buffett Indicator,” which divides the Wilshire 5000 Index—often viewed as a proxy for the total U.S. stock market—by annual U.S. GDP.
Today, the Buffett Indicator is flashing levels never seen before. The reading suggests stocks may be overdue for a healthy pullback in early 2026, ,” as quoted in a Yahoo Finnce article. According to data from GuruFocus, the indicator currently stands at about 221.4%, up roughly 22% since April 30, as quoted on the same article.
Another Yahoo Finance article revealed that in a 2001 reflection on the dot-com bubble bust, he offered a simple guide: “If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you. If the ratio approaches 200% — as it did in 1999 and a part of 2000 — you are playing with fire.”
AI Boom
Some level of market pullback in 2026 appears likely, in any case. The severity of that downturn may depend on how the AI world evolves and positions itself. Revenues from AI are rising fast as more customers begin paying for AI services.
However, income growth still falls far short of covering the staggering scale of investment being made in the sector. Spending on AI is estimated to have reached $400 billion (£297 billion) in 2025, with even higher outlays expected over the next year, per an article published on Gurdian.
State Street Technology Select Sector SPDR ETF (XLK - Free Report) gained about 20.9% over the past one year (as of Jan. 2, 2026) despite all the AI-related overvaluation worries. We expect the winning momentum to continue in the coming days.
Note that AI giant NVIDIA (NVDA - Free Report) unveiled its next-generation Vera Rubin superchip at CES 2026 in Las Vegas on Monday. The chip is part of Nvidia’s newly branded Rubin platform, which consists of six interconnected chips. Meanwhile, AMD (AMD) CEO Lisa Su used her CES 2026 keynote to introduce the company’s upcoming AI data center platform, offering the first glimpse of the Helios system and outlining its underlying design. Such initiatives point to the fact that the AI and chip boom will continue to rule 2026. VanEck Semiconductor ETF (SMH - Free Report) has added 2.3% so far this year.