For three years, the stock market has provided investors with plenty of reasons to smile. When 2025 came to a close, the benchmark S&P 500 (^GSPC +0.65%) had climbed by 16%, marking the third consecutive year of gains tallying 15% or greater. This is only the third time in nearly a century that the S&P 500 has risen by at least 15% for three consecutive years.
However, expecting the Dow Jones Industrial Average (^DJI +0.48%), S&P 500, and Nasdaq Composite (^IXIC +0.81%) to deliver outsize returns for a fourth straight year might be asking too much.
Although Wall Street has been flush with catalysts, headwinds are mounting. When 2026 comes to a close, it's my prediction that it'll be looked back on as the "Year of the Bubble," with up to four potential bubbles threatening to burst.
Image source: Getty Images.
Quantum computing
Even though artificial intelligence (AI) has been the stock market's most consistent upside catalyst over the last three years, the hottest trend in 2025 was the arrival of quantum computing. With quantum computing, specialized computers are solving complex problems through rapid, simultaneous calculations that classical computers can't handle.
Since the beginning of October 2024, quantum computing pure-play stocks IonQ (IONQ 2.00%), Rigetti Computing (RGTI 2.06%), D-Wave Quantum (QBTS 4.00%), and Quantum Computing Inc. (QUBT 1.84%) have rallied by up to 3,080%, through the closing bell on Jan. 8, 2026. However, all four companies are still in the very early stages of commercializing their quantum computers and services.
NYSE: IONQ
Key Data Points
Most Wall Street analysts believe it's going to take years before quantum computers can tackle practical problems more cost-efficiently than classical computers. Beyond that, it'll take additional time before businesses figure out how to optimize quantum computers to maximize their sales and profit potential. In other words, quantum computing isn't close to being a mature technology.
For high-flying stocks IonQ, Rigetti Computing, D-Wave Quantum, and Quantum Computing Inc., this means ongoing operating losses and cash burn, the likelihood of share-based dilution to raise capital, and nosebleed price-to-sales (P/S) ratios that can't be justified. Quantum computing might be the most obvious bubble waiting to burst on Wall Street in the new year.
Artificial intelligence
Whereas quantum computing is still a nascent technology, rapid sales growth for the faces of the AI revolution, Nvidia and Palantir Technologies (PLTR +0.36%), suggests that AI is much farther along in the maturation process. Demand for AI infrastructure and cloud-based AI solutions has added more than $4.1 trillion to Nvidia's market cap since the beginning of 2023 and sent shares of Palantir higher by approximately 2,650%!
NASDAQ: PLTR
Key Data Points
Unfortunately, historical precedent has come into play with every next-big-thing technological advancement since (and including) the advent of the internet in the mid-1990s. All game-changing innovations need ample time to mature and evolve -- and it doesn't appear as if investors are giving AI the time it needs to mature.
Although sales of AI hardware have been robust, most businesses don't appear to be particularly close to optimizing this technology. Investors have a habit of overestimating the adoption rate, utilization, or optimization of new technologies. We've witnessed this, without fail, with the internet, genome decoding, nanotechnology, 3D printing, blockchain technology, and the metaverse. There's no indication that AI is going to be the exception to the rule.
The silver lining is that AI can be every bit the game-changing technology it's made out to be. But when industry leaders like Palantir are commanding a trailing 12-month P/S ratio of 116, as of the closing bell on Jan. 8, investors have lost the plot.
Image source: Getty Images.
Bitcoin treasury strategy
A third bubble that can pop in the new year is the Bitcoin (BTC 0.18%) treasury strategy. This strategy involves public companies utilizing available cash or issuing stock and/or convertible debt to purchase the world's largest cryptocurrency, which is then held on the balance sheet.
The Bitcoin treasury strategy was effectively founded by Michael Saylor's Strategy (MSTR 5.77%), which began acquiring Bitcoin in August 2020 and hasn't stopped since. As of Jan. 5, 2026, Strategy had spent $50.55 billion to acquire its 673,783 Bitcoin.
When Saylor's company initiated this corporate strategy, it made a lot of sense. In the summer of 2020, it wasn't easy to gain exposure to the world's largest digital currency without buying it directly on a cryptocurrency exchange. But with several spot Bitcoin exchange-traded funds (ETFs) and futures contracts available today, it's incredibly easy for everyday investors to gain exposure if they wish to do so.
NASDAQ: MSTR
Key Data Points
This last point is incredibly important because most companies involved in the Bitcoin treasury strategy have traded at significant premiums to the net asset value of their digital assets. With most of these companies losing money, issuing stock, or borrowing capital to make their Bitcoin purchases, the last thing investors should want is to pay a double- or triple-digit percentage premium to NAV.
Strategy has issued several preferred stocks with high yields to fund some of its Bitcoin purchases. However, Strategy's enterprise analytics software segment doesn't generate anywhere near enough cash flow to cover the interest payments. As a result, Strategy's outstanding share count is ballooning as common stock is issued to cover dividend payments. This is a corporate plan that seems destined to fail.
The second priciest stock market in 155 years
Last but not least, the stock market, as a whole, is historically expensive -- and that's a big problem.
While there is no shortage of ways to value a company or the broader market, the S&P 500's Shiller Price-to-Earnings (P/E) Ratio does a good job of cutting through the noise. Note, the Shiller P/E is also known as the cyclically adjusted P/E Ratio, or CAPE Ratio.
Although the Shiller P/E wasn't officially introduced as a valuation tool until the late 1980s, it's been back-tested to January 1871. Over 155 years, the S&P 500's Shiller P/E has averaged a multiple of roughly 17.3. As of the closing bell on Jan. 8, the CAPE Ratio clocked in at a multiple of 40.66, making the current bull market the second priciest in history.
S&P 500 Shiller PE Ratio hits 2nd highest level in history 🚨 The highest was the Dot Com Bubble 🤯 pic.twitter.com/Lx634H7xKa
-- Barchart (@Barchart) December 28, 2025
There have only been three instances in 155 years where the Shiller P/E has topped 40, and six occurrences above 30 during a continuous bull market. The previous two times it topped 40 were eventually followed by significant declines. For instance, the S&P 500 and Nasdaq Composite shed 49% and 78% of their respective value following the dot-com bubble. What the Shiller P/E has shown is that extended stock valuations aren't well tolerated over long periods.
With up to four bubbles at risk of bursting in 2026, this may well be known as the "Year of the Bubble" on Wall Street.
