As of 17 December, the FTSE 100 is up 19% for the year so far. London’s leading index has handsomely rewarded investors even without taking into account some world-beating dividends.
With investors cautious about frothy valuations in tech and AI, could the more defensive-minded Footsie have a terrific 2026 too?
Crash incoming?
There’s a chance that next year is going to be known for a famous stock market crash. Why? Because the hype around AI is verging on the kind of hysteria last seen in the dotcom bubble.
While new large language models like ChatGPT or Gemini are impressive, they’re yet to deliver the kind of economic growth some are predicting.
One notable study by MIT found 95% of initiatives didn’t make a return on investment. In other words, only one in 20 firms has found a way to turn a profit using AI. That sounds pretty bad to me.
Why is this a problem? Because big tech companies are spending hundreds of billions, aiming to corner the market. This is a dangerous amount of money to spend on data centres, engineers and the like if there’s no pot of gold at the end of it.
It’s not just me saying it either. Bank of England chief Andrew Bailey has spoken to the press about his worries. Legendary investor Warren Buffett has been growing a record cash position.
Even the CEO of OpenAI, Sam Altman, the man at the very heart of artificial intelligence, said: “Is there a bubble? My opinion is yes.”
Safety
Because of the FTSE 100’s relative lack of tech and AI companies, the index could be insulated from a correction or crash. Indeed the index could outperform if investors start rushing in as they look for safety.
It’s telling that the FTSE 100 is posting some of its best days when there are market jitters across the Atlantic. On 15 December, the S&P 500 was down amid AI worries while the Footsie had one of its best days of the year.
If a crash does come, then some of the cheap FTSE 100 shares could prove to be terrific investments. One stock that has caught my eye recently is JD Sports (LSE: JDS) and it could be worth considering. The sportswear retailer has lost 60% in value. The shares now change hands for just 83p.
The stock’s price-to-earnings ratio has fallen to 8.4. That’s one of the lowest on the FTSE 100 and less than half the average. This could be a signal that this is a super-cheap low point for a business that’s one of the biggest sportswear retailers globally.
As for negatives, much of the firm’s prospects hinge on changing trends. Indeed, one of the reasons for previous success was the rise of athleisure. Should folks stop wearing trainers and jogging bottoms like they’re going out of style then the stock could fall out of fashion more than it already has.
The last word? There’s no guarantee of any stock market crash next year, AI-related or otherwise. But picking up undervalued stocks at a low ebb will always be a winning strategy. I’d say JD Sports could be worth a look for the right investor.
