Expect the AI trade to be less dominant in 2026, says Peter Boockvar

Key Concepts

• AI Tech Trade: The investment trend focused on Artificial Intelligence and related technology companies, particularly those involved in data center build-out.
• Commodity Bull Market: A sustained period of rising prices for commodities, currently observed in industrial metals.
• CapEx (Capital Expenditure): Funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, and equipment.
• Basis Points: A unit of measurement used in finance to describe the percentage change in an interest rate or yield. One basis point equals 0.01%.
• Sovereign Debt: The debt issued by a national government.
• Duration: A measure of the sensitivity of the price of a fixed-income investment to changes in interest rates.
• Immediate Expensing: A tax provision allowing businesses to deduct the full cost of an investment in the year it is made.

Market Outlook & Economic Analysis – Peter Boockvar Interview

Introduction & 2025 Review

The interview begins with a discussion of market performance, acknowledging the initial weakness in futures. Peter Boockvar, Chief Investment Officer at BFG Wealth Partners, emphasizes a pragmatic approach to investment, focusing on identifying opportunities for growth rather than expressing optimistic or pessimistic sentiment. He notes that 2025 saw a broadening of market participation, with international stocks, small and mid-cap stocks demonstrating strong performance, a departure from previous trends.

Shifting Market Dynamics in 2026: The AI Trade & Beyond

Boockvar believes the dominance of the AI tech trade is waning. He cites examples like Oracle’s performance, the market’s reaction to Nvidia’s report, and the market’s negative response to Meta’s increased spending as evidence of this shift. He argues investors are now differentiating between winning and losing companies within the AI space, reducing the overall impact of the trade. He anticipates opportunities in international markets, a continuing commodity bull market (initially in industrial metals, with potential for broader expansion), and continued outperformance from small and mid-cap stocks. “We’ve reached a point where investors are realizing they’re going to be winners and they’re going to be losers. So I think that trade is going to be less dominant, giving the opportunity for other things to do well.”

US Economy & AI Dependence

A key argument presented is the US economy’s heavy reliance on the AI data center build-out for growth. Boockvar states that most of the economic growth in 2025 stemmed from this construction, and the S&P 500 is heavily influenced by companies involved in this sector. He questions whether growth can transition to other areas of the economy, hoping for a “baton pass” to other sectors. He highlights that CapEx growth in 2025 was almost entirely driven by data centers, with other areas showing no growth. He expresses hope that tax incentives for immediate expensing will stimulate CapEx in other sectors in 2026.

Interest Rate Environment & Debt Concerns

Boockvar discusses the complex interest rate landscape. While anticipating further central bank rate cuts, he notes that long-end rates are not responding accordingly. He points to the European Central Bank’s 200 basis point rate cuts being offset by rising French and German bond yields, and the Bank of Japan’s rate hikes accompanied by rising long-term rates. The US ten-year yield remains “stubbornly stuck above 4%”. He raises concerns about US debt and deficits, stating that they are “out of control” and could eventually impact the US Treasury market. He believes that debts and deficits are becoming increasingly relevant as investor appetite for sovereign bonds with excessive debt is questioned. “That at some point I think does matter for the US Treasury market, because I do think debts and deficits now matter because sovereign bonds are being put into question in terms of duration and the appetite of investors for those countries that have excessive debts and deficits.”

Earnings & Market Valuations

Regarding earnings, Boockvar acknowledges a consensus expectation of a 10%+ increase for the year. He believes the market multiple will be heavily influenced by the ten-year yield; a rise to 4.5% - 5% would likely lead to multiple contraction. He also reiterates that a weakening AI tech trade would negatively impact the S&P 500 relative to other market segments. He acknowledges potential stimulus from deregulation, the “big beautiful bill,” and lower oil prices, but emphasizes the importance of the bond market’s cooperation.

US Debt & Fiscal Responsibility

The interview concludes with a brief discussion of the US national debt, currently at $40 trillion, which Boockvar considers a significant issue that is not discussed enough. He implies a personal awareness of the gravity of the situation, despite maintaining a composed demeanor.

Logical Connections

The conversation flows logically from a general market overview to a detailed analysis of specific sectors and macroeconomic factors. The discussion of the AI trade naturally leads to a broader examination of the US economy’s dependence on it, which then transitions into a discussion of interest rates, debt, and earnings. Each point builds upon the previous one, creating a cohesive and insightful analysis.

Synthesis/Conclusion

Peter Boockvar presents a cautiously optimistic outlook for 2026, emphasizing the need for investors to diversify beyond the AI tech trade and recognize opportunities in international markets, commodities, and small/mid-cap stocks. He highlights the critical role of the ten-year yield and the potential risks posed by US debt and deficits. His core message is that while the AI sector remains important, its dominance is likely to diminish, requiring a more nuanced and diversified investment strategy. He stresses the importance of a pragmatic, data-driven approach to investment, focusing on identifying opportunities as they arise rather than relying on pre-conceived notions or wishful thinking.