The research firm sees the S&P 500 falling to 6,500 by the end of 2027 if the AI trade fades, and names real estate and consumer staples as the best places to shelter
Capital Economics has a message for anyone riding the artificial intelligence rally: think about where you would go if the ride ends.
In a research note published Thursday, the firm said traditional defensive sectors, including real estate and consumer staples, “remain the best bet” as safe havens if the AI momentum trade stumbles.
The note does not claim that a crash is guaranteed. Capital Economics leaves open whether the AI trade is a bubble at all. Its argument is narrower and more practical: whatever happens, investors still have places to hide.
The 6,500 forecast and what drives it
The headline number is the S&P 500 target. Capital Economics forecasts the index will eventually fall to 6,500 by the end of 2027.
The firm describes two routes to that destination. In the first, air keeps leaking slowly out of the AI trade. In the second, the AI bubble bursts outright.
The 6,500 target also marks a sharp contrast with the mood of mid-2026. Index targets at that point ranged between 7,000 and 8,250. A forecast of 6,500 sits below the bottom of that range.
Why the firm thinks the boom is running out of road
The AI-driven equity rally gained momentum throughout 2026. Capital Economics now sees several signs that it is nearing its end.
Among them are frothy valuations and multiple indicators that the firm associates with bubbles. The firm also points to elevated capital spending relative to GDP. Companies have been pouring money into AI infrastructure at a scale the broader economy may struggle to justify.
That spending is tied to high earnings expectations built around advances in AI. Capital Economics believes this combination may not be sustainable.
Capital Economics suggests a significant equity adjustment, particularly in growth and technology stocks, could happen without triggering a broader macroeconomic crisis.
Why real estate and consumer staples
Defensive sectors earn the label because demand for what they sell tends to hold up when the economy or the market wobbles.
Real estate is the other sector Capital Economics singles out. The firm’s choice of the phrase “remain the best bet” suggests this is not a new conviction but a continuation of its existing view.
How Capital Economics got here
Capital Economics has been tracking the market impact of AI since 2024 and 2025. By September 2026, the firm had shifted to a more cautious outlook. Thursday’s note builds on that pivot with a specific index target and specific sector recommendations.
What this means for investors
The most direct implication falls on portfolios heavily weighted toward technology and growth stocks. If the forecast plays out, those holdings would bear the brunt of a decline to 6,500.
The note gives those investors a framework rather than a panic button. Rebalancing toward defensive sectors is a way to stay invested while reducing dependence on one storyline. Under the firm’s view, real estate and consumer staples are where that rebalancing should start.
The forecast runs to the end of 2027. Watch two things in particular. The first is whether AI-related earnings keep pace with expectations. The second is whether capital spending on AI starts to pull back. Capital Economics has flagged both as pressure points.
