Bulls Defy the “AI Slump” Narrative

As the final month of 2025 begins, the stock market is staging a counterintuitive rally. Just days after pundits lamented that “Nvidia didn’t save the market,” equities are drifting back toward all-time highs without the chip giant’s help. The S&P 500 sits less than 1% from its record peak, signaling a resilience that contradicts the prevailing “AI bubble” anxiety. While the Nasdaq Composite recently snapped its seven-month winning streak, the broader market’s ability to grind higher—despite significant corrections in former leaders—suggests a healthy rotation is underway. Investors are no longer relying on a single stock to hold up the index; instead, they are diversifying their bets in anticipation of a smoother end-of-year trading session.

The Great AI Rotation: Winners and Losers

The monolithic “AI trade” that defined the first half of the year has fractured into a stock-picker’s market. A stark divergence is visible among the heavyweights: while Nvidia and Meta have retreated 8% and 13% respectively over the last month, Google (Alphabet) has surged nearly 20%. This decoupling is driven by specific catalysts—Google’s successful Gemini 3 model launch and reported chip deals—contrasted against growing skepticism over the capital expenditure plans of its peers. The market is not abandoning AI; it is becoming far more selective, punishing “promise” while rewarding immediate execution and competitive advantages.

2026 Outlook: Betting on a Productivity Supercycle

Looking beyond the current volatility, Wall Street’s medium-term thesis remains aggressively bullish. Strategists at JPMorgan and Deutsche Bank are projecting the S&P 500 could reach between 7,500 and 8,000 by the end of 2026. This optimism is underpinned by the belief in an “AI-driven supercycle,” comparable to the 1990s tech boom. The core argument is that the massive infrastructure build-out seen in 2025 will transition into a phase of widespread productivity gains and margin expansion across the corporate landscape. These targets suggest that the current “drift” is merely a consolidation period before the next leg of the rally, provided the Federal Reserve continues its rate-cutting trajectory.

The Week Ahead: Data, Rates, and Retail

In the immediate term, the market’s direction will hinge on a collision of macroeconomic data and consumer health. With the Federal Reserve entering its blackout period ahead of a likely December rate cut, investor attention will shift to corporate earnings. Reports from bargain retailers like Dollar Tree and Dollar General will offer critical insight into the low-end consumer, who remains squeezed by inflation. Simultaneously, tech earnings from Salesforce and CrowdStrike will serve as a bellwether for enterprise software spending. If these reports confirm that demand remains robust despite the noise, the market may well break fresh records before the year concludes.

A New Market Regime

The narrative has shifted from “Will Nvidia save us?” to “Who needs Nvidia?” The market’s drift toward record highs in the face of tech weakness indicates a broadening of breadth that is historically bullish. However, investors should remain vigilant regarding the “boom-and-bust” sentiment swings described by Deutsche Bank. As the calendar turns to 2026, the primary risk is no longer just high valuations, but the speed at which the market prices in the anticipated productivity gains. Monitoring the dispersion between hardware providers and software beneficiaries will be the key to navigating this next phase of the cycle.