INSIGHTS

On February 23, 2026

AAM Viewpoints — Diversification Takes Home the Gold

Overview:

• Mega-cap names that have dominated benchmark returns in recent years have stalled, masking signs of underlying health and a broader opportunity set in the equity market.
• Value-tilted and economically sensitive segments are emerging as early leaders.
• This environment is highly conducive to active management, deliberate security selection, and diversification.

Broad Participation

The start of 2026 has already indicated that this year may look different. The S&P 500 Index is essentially flat through the first seven weeks, however, performance beneath the surface has been strong. A substantial 64% of S&P 500 constituents are outperforming the index year‑to‑date, the highest reading since 2000 and the second highest since 1973.

Past performance is not indicative of future results.

This stands in sharp contrast to the first three years of the current bull market cycle, when concentrated gains drove very narrow leadership. Today, mega‑cap names that dominate benchmark weights have stalled, masking what we believe are signs of underlying strength and a broadening opportunity set across equities.

Rotation

Equity indices are hovering near record highs — but without the familiar Large‑Cap Growth leadership, a trend that began late last year. The average stock has outperformed the “Magnificent 7” by 16.9% from its peak in late October (10/29/25–2/17/26).

Additional highlights for the same period:

• The Russell Value Index has outperformed the Russell Growth Index by 18.1%.
• Small- and mid‑cap stocks (Russell 2000) have gained 6.9%.
• Dividend‑paying equities have risen 13.3%.
• Materials and Energy are the strongest sectors, up 23.5% and 20.5%, respectively.
• Technology has declined 10.3%.

This remains a rotational market, with value‑tilted and economically sensitive segments emerging as early leaders.

Outlook

A broad market is a healthy market — and we expect equities to advance overall through the remainder of the year. Large‑Cap Growth stocks should still participate due to their size and influence in major benchmarks. However, the baton of leadership has shifted toward undervalued segments of the market.

Whether this represents a durable rotation or a shorter‑term rebalancing remains to be seen. What is clear is that the narrow leadership of recent years appears to be over.  Opportunities are abundant in 2026, creating a strong backdrop for active management, thoughtful security selection, and diversification as many of the beneficiaries of the rotation remain underrepresented in benchmarks. Notably, 57% of large‑cap mutual funds are outperforming their benchmarks year‑to‑date, well above the long‑term average of 37%.

CRN: 2026-0206-13201 R

This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at commentary-disclosures. For additional commentary or financial resources, please visit www.aamlive.com.