AI Adoption Rate will Boom Spiking Productivity

2026 is off to a choppy start as macro crosscurrents abound.

On the one hand, the strong fundamentals we outlined in our 2026 Outlook have kept stocks well bid near record highs as this rotating rally continues to broaden out.

On the other, out of the blue, tape bombs are creating near-constant headline risk for investors.

This is where separating signal from noise comes in handy.

In a mid-term year, nothing seems off limits as Trump looks to tackle “affordability” - voters #1 gripe.

Everything from the Fed to tech hyper-scalers, housing, defense, credit card, private equity and energy industries have been targeted for shock reforms aimed at trimming the cost of living.

And it’s only January!

Throw in an imminent SCOTUS decision on the legality of IEEPA tariffs, and geopolitical uncertainty in Iran and Greenland, and our 2026 Outlook prediction for higher volatility is playing out in spades.

At noisy times like this, it’s easy to get spooked.

But remember, only Congress can pass new laws and 90% of geopolitical flare ups fail to derail stocks for long. As for SCOTUS, the net effective tariff rate will likely fall as the court nixes the IEEPA tariffs.

Avoid emotional, knee jerk responses. Instead, look at history and fundamentals to pave the way forward.

Today, we’ll highlight two macro studies that signal further gains for stocks, with the latter focused on one of the biggest tailwinds: AI adoption rates and its impact on productivity.

Then, we’ll highlight new sectors that stand to keep winning as leadership shifts.

As a bonus, we’ll wrap up with a list of top institutional outliers in the best positioned sectors.

But first let’s unpack a bullish technical indicator that is flashing green.

The First Five Day Indicator Flashes Green

Let’s start with market history.

Some seasonal studies pack more punch than others.

One of the most accurate seasonal indicators is the “first five-day indicator.” It holds that the S&P 500's 1.1% gain in the first five days of 2026 is bullish for the full year.

Since 1950, the S&P averages a 16% annual gain when it's up in the first 5 days of the year vs. just 3% when it's down. When the first 5 days have been positive, the full year has been up 86% of the time (chart).

OK let’s shift gears to macroeconomic fundamentals.

AI Adoption Rate will Boom Spiking Productivity

Higher productivity is bullish for stocks because it makes companies more efficient as output rises without increasing labor costs – a major expense for most.

That boosts corporate profit margins and earnings.

Q3 productivity rose 4.9% from a year ago, marking one of the highest prints since 2020, and more than double the 1.9% long-run average (chart).

It’s hard to imagine that increasing AI adoption isn’t at least partly responsible for faster productivity growth. 

Here’s the best part.

A Goldman Sachs analysis reveals the productivity benefits of major new technology innovations don’t peak until workforce penetration exceeds well over 50%.

That’s what happened with the advent of the electric motor in 1890 and the PC in the early 1980s.

AI workforce penetration is ramping fast but it’s still nowhere near 50% (chart).

That means AI innovation should keep boosting corporate productivity for years to come.

OK let’s connect the dots and bring all this back to stock performance.

Rising productivity has historically been a clear tailwind for equities.

Since 1950, the S&P 500 has averaged 12% gains in the 12-months after the biggest prior year productivity accelerations. By contrast, when productivity has shrunk, equity returns have been sub-par (chart):

This is the signal to heed in a sea of noise.

The AI adoption rate still has plenty of room to run which will keep productivity moving in a northbound direction.

What This Means for Your Portfolio

As we forecasted in our 2026 Outlook, sector leadership has shifted away from tech to cyclicals including energy, industrials and materials as strong growth and tame inflation stoke the reflation trade (chart).

It’s also notable that the long-suffering staples sector has caught a bid thanks to cheap relative valuations, high yields and the fact that they aren’t in the President’s policy crosshairs.

This is mirrored in our latest sector rankings with all YTD leaders ranked highest:

We’ve been very vocal about the huge market rotation that’s been underway.

New leadership has emerged…and that’s a great thing for stock pickers.

Let’s wrap up with a list of high margin, productivity leaders in the winning materials, industrials, and energy sectors.

This is where the MoneyFlows process shines bright. Our data is built to find the outlier stocks ahead of the crowd.

Where most research houses got it wrong in 2025, MoneyFlows got it right.

To get access and make even more from this call to action, sign up for a PRO membership.

You’ll get access to our proprietary indicators and learn how our unique money flow approach finds outlier stocks early. Give it a shot!

If you’re a money manager or RIA and want portfolio solutions, reach out about our Advisor solution here.

Good things happen when you follow the data instead of the crowd!

This time, be early.

Our process helps investors “be early” to trends.

Go with the flows!