The S&P 500 rallied by 16% in 2025, marking three consecutive years of gains. However, historical headwinds are mounting, with Wall Street facing the second priciest stock market in 155 years. Expectations for outsized returns in 2026 may be unrealistic, with potential bubbles threatening to burst.

Quantum computing emerged as a hot trend in 2025, with stocks like IonQ and Rigetti Computing rallying by up to 3,080%. However, analysts believe it will take years for quantum computers to tackle practical problems cost-efficiently. Operating losses, cash burn, and high price-to-sales ratios make quantum computing a bubble at risk of bursting.

AI stocks like Nvidia and Palantir Technologies have seen rapid sales growth, with AI infrastructure demand adding over $4.1 trillion to Nvidia’s market cap. Despite robust sales, businesses are not close to optimizing AI technology, leading to overestimation by investors. High valuations suggest a bubble waiting to burst in the AI sector.

The Bitcoin treasury strategy, pioneered by companies like Strategy, involves using cash to purchase Bitcoin for the balance sheet. While this strategy made sense in 2020, it may fail in 2026 due to companies trading at significant premiums to their digital asset net worth. Issuing stock, borrowing capital, and increasing share counts could lead to failure.

The stock market is historically expensive, with the Shiller Price-to-Earnings Ratio at the second-highest level in history. Only three instances in 155 years have seen the ratio top 40, leading to significant declines. Extended stock valuations are not well tolerated over long periods, hinting at a potential bubble burst in 2026.

Read more at Nasdaq: Prediction: 2026 Will Be Known as the “Year of the Bubble” on Wall Street