Wolfe arguing that market leadership will remain narrow as AI spending remains high and growth will be limited to a small number of large companies.

Wolfe stated that AI-related capital expenditures remain their top theme, and the firm does not yet see clear signs of a bubble.

Analysts expect further upward revisions to capital expenditure estimates at major tech companies, which will strengthen earnings growth and support stock returns.

Wolfe noted that while growing debt issuance among large tech companies is noteworthy, AI investments remain largely supported by cash flow rather than external financing.

The firm also expects market breadth to remain narrow, with mega-cap and market-cap indices outperforming smaller stocks.

Wolfe pointed to subdued activity in housing, autos, and energy, along with subdued capital spending outside of AI, as reasons why broader parts of the market are unlikely to catch up.

With only a small fraction of S&P 500 companies expected to deliver double-digit revenue growth in 2026, investors will likely continue to favor sectors with more pronounced structural growth, particularly technology and communications services.

In the consumer sector, Wolfe expects spending to be driven primarily by high-income households, supported by stock market growth and the wealth effect concentrated among older generations.

For lower-income consumers, the firm believes tax refunds and fiscal support could provide a short-term boost for select discretionary stocks in the first half of the year. Wolfe also sees a shift in policy focus toward deregulation, which it believes will support capital markets activity and M&A activity, particularly in the financial and automotive sectors.

The firm forecasts a weakening US dollar as the Federal Reserve cuts rates faster than other major central banks, which it believes will create a favorable environment for commodities and emerging markets.