2026 Equity Market Trends

The big are getting bigger. And not just by a little. If you own a broad U.S. index fund, nearly 40 cents of every S&P 500 dollar now sits in just ten companies; those same ten produce roughly a quarter to a third of the index’s earnings. That’s concentration we haven’t seen in decades, and it’s mostly techtilted.

A big driver? The AI buildout. Hyperscalers (Amazon, Google, Meta, Microsoft, Oracle) have opened the checkbook. Street estimates put 2025 AI capex north of $300B, with Amazon and Microsoft leading the spend, capital that doesn’t vanish in a year. Meanwhile, total S&P 500 capex hit a record in 2025, with the largest spenders approaching ~30% of the pie. Put plainly: scale is funding the future, and the future is very capital intensive.

This “bigger gets bigger” theme isn’t just tech. In retail, Walmart and Costco have been outsized contributors to growth, leveraging value, logistics, and supplier muscle to keep foot traffic and memberships rising. Scale travels well. And it compounds.

Three Questions for Equities in 2026

1. What’s the outlook for the Mag 7?
   For years, their stocks moved like a school of fish. We think 2026 looks different. Dispersion is coming. The key debate isn’t “AI or no AI,” it’s whether AI enhances, or cannibalizes, the core business and whether massive spending (capex) earns its keep in free cash flow. Our checklist: unit economics in cloud/ads/devices, capextocash conversion, and evidence of durable moats around models and data. The market seems to agree: even other strategists who are calling for higher S&P levels flag a looming “winners vs. losers” dynamic inside big tech.
2. Will secular growth in small caps be rewarded (again)?
   We think so: selectively. With average smallcap earnings still meh, consistent, abovetrend growers should command premia as rates drift lower. The leadership may not mirror past cycles: think more semiconductors than software, and aerospace/defense over housing plays. Data helps here: screens that start with high gross margins, clean balance sheets, and pricing power narrow the field before we do bottomsup work. Context: largecap earnings expectations have risen while smallcap trends were flat, another reason true secular stories could stand out.
3. Is China’s rally sustainable into 2026?
   Recent gains have leaned on ample liquidity and rising onshore participation, helped by targeted government steps to boost consumption. The bridge to durable returns is earnings growth, and on that score, valuations still look appealing versus developedmarket peers, with room for outside capital if positioning remains light. Offsetting risks: tariff rhetoric, policy surprises, and a stillfragile property backdrop that can sap confidence quickly. Translation: opportunity, but with guardrails.