The stock market bubble will burst in 2027, and the current rotation is a ‘warning of trouble ahead,’ Capital Economics says
Fortune
by Nick LichtenbergFebruary 23, 2026
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Capital Economics has issued a warning that the ongoing shift in U.S. equities, characterized by small-cap, value, and defensive stocks outperforming large-cap, growth, and cyclical stocks, could signal a stock market bubble set to burst in 2027. This rotation, which began gaining momentum in late 2025 and has continued into early 2026, resembles patterns seen before the dotcom bubble burst in 2000. John Higgins, the firm’s chief markets economist, draws parallels between the current market dynamics and the late stages of the dotcom era, suggesting that the shift could be a “warning of trouble ahead.”
The recent outperformance of small-cap, value, and defensive sectors reflects a broader rotation away from tech-heavy growth stocks toward more valuation-conscious areas. This mirrors the late 1990s when U.S. small-caps started to outperform large caps nearly a year before the dotcom bubble burst. However, there are notable differences: unlike the dotcom era, value stocks have already begun to outpace growth stocks in early 2026, making this rotation somewhat unique. Higgins cautions that while the market’s bullish run since the Global Financial Crisis makes it hard to declare a definitive regime change, the combination of elevated market levels, investor focus on valuations, and leadership shifts beneath the surface aligns with his thesis that U.S. equities are in the late stages of a bubble.
Despite these similarities to past cycles, not all rotations have led to market
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Originally published on Fortune on 2/23/2026