Final 12 months, within the December 7 QT, we wrote:
“It now not makes a lot sense for us to proceed recommending overweighting the and sectors in an portfolio …. The identical will be mentioned about overweighting america within the All Nation World MSCI portfolio.”
It was time to rebalance, in our opinion, as a result of the 2 sectors accounted for a outstanding report 46.7% of the S&P 500’s market-cap weight on November 5, 2025, whereas the US accounted for a staggering 65.0% of the market-cap weight of the All Nation World MSCI at about the identical time.
Within the December 13 QT, we wrote:
“The S&P 500’s Magnificent-7 is likely to be much less magnificent in 2026 as their fierce competitors within the AI race begins to erode the monopolies they’ve loved in search (), software program (), retailing (), promoting (), electrical autos (), smartphones (), and GPU chips (). The beneficiaries of that competitors are prone to be the S&P 500’s Spectacular 493.”
To this point, so good. The management of each the S&P 500 and the All Nation World MSCI has been broadening away from final 12 months’s outperformers, which we anticipate to proceed:
1. S&P 500 earnings breadth stays excessive
The chances of S&P 500 firms with constructive three-month proportion adjustments of their ahead revenues and earnings per share stay excessive at 82.8% and 82.0% (chart). This could underpin the broadening of the bull market in shares.
2. The bull market within the S&P 500 is displaying indicators of broadening
The ratio of the S&P 100 to the S&P 500 might need peaked on the finish of final 12 months, properly beneath the height through the tech bubble of 1999 (chart). In that case, then the percentages of a bubble bursting now are a lot decrease than they have been again then, when the inventory market was rather more concentrated in tech names than it’s now, based on this ratio. So as a substitute of a bursting bubble, we could also be seeing a broadening bull market.
The identical will be mentioned for the ratio of the S&P 500 market-weight to (chart). The latest drop within the ratio is likely to be the newest head-fake. Nevertheless, we’re betting that the ratio will proceed to pattern decrease in 2026 because the bull market broadens.
The equal-weight S&P 500 has been setting report highs not too long ago, whereas the market-weight S&P 500 has but to take action (chart).
3. Will S&P 500 Data Expertise and Communication Companies sectors proceed to achieve market-cap share of the index?
We began to doubt that they might be late final 12 months, when collectively the 2 sectors had risen to a report 46.7% share of the S&P 500’s complete market cap; we have been skeptical although their mixed earnings share had reached a report 40.0% of the index (chart).
The present market-cap share of the 2 sectors mixed exceeds that at the peak of the tech bubble in 2000, however so does their mixed earnings share. We anticipate that massive AI capital spending and margin pressures will flip each sectors from outperformers to market performers.
Our “Sport of Thrones” thesis is working, thus far. Till late final 12 months, the Magnificent-7 operated as seven unbiased kingdoms protected by massive moats. Every prospered with its personal distinctive monopoly. Nevertheless, the AI arms race has upended that peaceable coexistence by tremendously growing competitors amongst them.
The ratio of the to ETFs peaked after Michael Burry famously tweeted on October 31, 2025, “Generally, we see bubbles. Generally, there’s something to do about it.”
4. SMidCaps are beating LargeCaps
Additionally confirming a broadening bull market in shares is the outperformance of the SmallCap and MidCap inventory worth indexes (a.okay.a. the SMidCaps) thus far this 12 months (chart). Once more, this improvement will be the newest head-fake, of which there have been a number of in recent times.
Nevertheless, the SMidCaps are nonetheless cheaper than the LargeCaps primarily based on their ahead P/Es (chart).
As well as, the ahead earnings per share of the SMidCaps, which have been in a coma since late 2022, have been displaying indicators of life (chart).
To this point this 12 months, the S&P 600 SmallCap and S&P 400 MidCap indexes are solidly beating the S&P 500 LargeCap index (chart).
5. On a world foundation, the US is likely to be at peak exceptionalism as measured by its market-cap share of the All Nation World MSCI
The US undoubtedly will stay distinctive in some ways. Nevertheless, that is likely to be absolutely discounted by the US MSCI’s present market-cap share of the All Nation World MSCI, at 64.0% (chart). In the meantime, quickly rising center courses in rising market economies clearly aspire to attain better prosperity.
The ahead P/E of the All Nation World MSCI has been rising over the previous three years (chart). Nevertheless it stays properly beneath that of the US.
As occurred final 12 months, the US MSCI inventory worth index continues to underperform lots of the world’s different MSCI inventory worth indexes thus far in 2026 (chart).
Unique Put up
