Stocks' rough patch doesn't mean the rally is at an end, but it could signal the finish line is closer than bulls hope.

The S&P 500 has had a difficult month: As of Thursday's close it had fallen 2.7% from its record close of 7798.99, reached on August 13. Part of that may be typical seasonal weakness, since August is historically a difficult month for the market, as is September. But with the index still up more than 10% so far in 2026, on track for its fourth year of double-digit gains, some investors are naturally questioning whether the recent declines indicate that the artificial intelligence-fueled run is finally starting to lose steam.

Capital Economics Senior Markets Economist James Reilly thinks that while that's unlikely to happen this year, the end may not be far off: "Looking across a range of equity market 'bubble' indicators supports our view that while the S&P 500's rally has further to run this year, its medium-term prospects are poor given how frothy the market looks," he writes in a note Thursday.

The range of factors his firm tracks shows that even if things are unlikely to come to a head now, the AI boom may be entering its final stretch. "They suggest the AI equity boom is in its final stages...the data look consistent with a late-stage bubble," Reilly writes.

Out of eight indicators, five are now at extremes that are consistent with equities nearing a peak.

Valuation is a red flag. Although the S&P 500's forward price-to-earnings ratio is now around 21 times, having pulled back from its late 2025 peak of 23 times, and U.S. valuations have fallen relative to those in markets elsewhere, there was a similar pattern of U.S. underperformance from 1999 to 2000. That means the recent pullback "is hardly a surefire sign the U.S. market is not in a bubble."

Likewise, that multiple still implies "very punchy earnings growth," as Reilly puts it.

Consensus earnings per share for the next 12 months are now at levels that correspond with the peak of the dot-com bubble, and unlike prior instances, the lofty forecasts can't be explained away by a rebound from prior weakness. The fact that so much of this expected earnings growth is projected over the long term and concentrated in the tech sector makes this doubly concerning, he writes.

Speaking of tech, the current S&P 500 "concentration is alarming," he notes, as the weights of the largest companies-all of which are tech-related-are at extreme levels. Both Nvidia and Apple recently accounted for more than 7% of the S&P 500, while Microsoft accounted for more than 5%.

Tech is also behind the next worry: Equity issuance is booming, another hallmark of a late-stage bubble. That metric could look even more extreme as AI giants OpenAI and Anthropic move toward highly anticipated initial public offerings.

And finally, foreign interest in U.S. equities has surged, much like it did before prior peaks.

The other three factors-corporate fundamentals, volatility and leverage-aren't at extremes that would signal trouble. However, with valuation, earnings, index concentration, equity issuance, and foreign ownership of U.S. stocks all flashing red, Reilly warns trouble could be creeping closer.

He predicts the S&P 500 will rally to 8250 by the end of the year, but fall back to 6500 by the end of 2027.

Investors should enjoy the party while it lasts.