US stock leadership may broaden beyond tech

New York: After years of watching technology stocks drive the US bull market, investors are betting the rally will broaden to industrial, healthcare and small-cap companies, with a chance they can catch up and assert market leadership.

Stocks such as Nvidia, Alphabet and Broadcom have buoyed the market's enduring rally, in which the S&P 500 has risen over 90% since the bull market began more than three years ago.

But investors have become wary of expensive tech valuations amid uncertainty over the AI theme that propelled market gains, concerns that helped other stocks make inroads.


Shares of industrial, healthcare and small-cap companies have outperformed the S&P 500 since the end of October, while the tech sector has declined. That rotation was on display on Wednesday as the S&P 500 tech sector fell more steeply than broader market indexes.

"There is a lot of hope that this is going to be the year where we are going to see some true broadening of leadership," said Angelo Kourkafas, senior global investment strategist at Edward Jones. "The conditions are likely in place for that broadening to happen, especially when you sprinkle in and consider elevated valuations, there are some pockets of value that can be found looking beyond technology."

Fourth-quarter earnings reports in coming weeks will factor into the broadening trend's durability. A wide swath of sectors is expected to show solid profits in 2026.

"Strategists have been predicting better earnings for a long time, but I really think it has legs this year," said Nanette Abuhoff Jacobson, global investment strategist at Hartford Funds. "We're starting to see the AI benefits filtering through to such a broad collection of sectors."

'AVERAGE' S&P 500 STOCK NOT SO AVERAGE
Tech and tech-related stocks led much of the bull run that began in October 2022, just before the launch of chatbot ChatGPT that sparked enthusiasm for AI-linked shares.

Late last year, the trend began to turn. One factor has been concerns AI investments would not yield sufficient returns to justify elevated valuations, investors said.

"With some questions being raised on tech, investors are looking at, what are other areas that I could invest in," said Keith Lerner, chief investment officer at Truist Advisory Services.

In another sign of broadening, the equal-weight version of the S&P 500, which is a gauge for the average stock in the index, has gained over 5% since the end of October. That tops a 1% rise for the standard S&P 500, which is more heavily influenced by heavyweight stocks.