A bullish broadening beyond the Mag 7: Insights from Jurrien Timmer - August 17, 2026

A bullish broadening takes hold

Both the cap-weighted and equal-weighted S&P 500 indexes recently reached new highs, with roughly 75% of stocks in uptrends. In Jurrien's view, that combination points to a genuine broadening of market participation rather than a rally driven by only a handful of large companies.

The shift is notable because it marks a departure from a pattern investors have grown accustomed to. Over the past three months, the equal-weighted S&P 500 has outperformed the Mag 7 by about 13 percentage points. Historically, that level of outperformance has tended to occur during market declines, when weakness in the Mag 7 weighed on the broader index.

This time, the rest of the market has continued to advance even as it outpaced the mega-caps. Jurrien said there are good reasons to think the period of Mag 7 leadership may be giving way to a broader market theme, a development that could create a wider opportunity set for active investors.

Resilience when the AI trade wobbles

Recent market action has provided evidence of that resilience. From the previous all-time high in early June until the market regained that level a few weeks ago, the S&P 500 declined only about 2.5%. Over the same period, the Mag 7 fell 9% and the broader AI space dropped roughly 15%. While the market did not make much progress during that stretch, it also did not experience a significant decline. Jurrien described the period as a benign broadening rather than a bullish one, highlighting the market's ability to remain relatively stable even as AI-related stocks came under pressure. The episode suggests the market is no longer dependent solely on semiconductors for support. Even so, the sector remains an important area to watch. Semiconductor earnings have tripled over the past year, a pace that is not expected to continue indefinitely. As a result, Jurrien said investors should focus less on peak earnings and more on peak momentum, or the point at which earnings continue to grow but at a slower rate.

Fundamentals, not valuation, are driving this cycle

Earnings momentum continues to be a powerful force behind the broader market. Not only are earnings estimates moving higher, but the rate of change in those estimates is also increasing. In Jurrien's view, that combination has historically been an important driver of market returns. At the same time, valuations do not currently appear elevated relative to earnings growth. The forward S&P 500 trades at about 20 times earnings, while the equal-weighted index trades at roughly 18 times. To put today's environment in context, he pointed to the late-1990s technology bubble. During the final phase of that rally, valuation expansion drove stock prices higher even as earnings growth slowed. Today, earnings growth has not yet begun to slow. Jurrien also noted that investors continue to scrutinize the underlying fundamentals, making a repeat of the late-1990s experience appear less likely in his view.

Two risks to watch in the AI boom

While the long-term case for AI remains compelling, Jurrien highlighted two areas that deserve attention.

The first involves the spending plans of hyperscalers such as Amazon, Meta and Google. The concern is that these companies could invest heavily in capital expenditures without ultimately earning an adequate return. Based on discussions with Fidelity's research teams, he noted that these companies also have well-established core businesses. As a result, they may be better positioned to absorb changes in AI spending plans than companies whose fortunes depend on a single business line. The second risk relates to the economics of AI development and the financing required to support continued expansion. A token expenditure index that Jurrien follows has been falling sharply, suggesting that AI developers are increasingly turning to lower-cost open-weight models rather than more expensive frontier models from companies such as OpenAI and Anthropic. Lower costs can support wider adoption, but they may also put pressure on the pricing power of frontier model developers. If that happens, it could be a concern about their ability to manage funds for large-scale spending on computing infrastructure. At the same time, significant amounts of capital continue to be raised. Roughly half a trillion dollars in hyperscaler bonds is expected to be issued this year, with additional issuance anticipated in the future. New financing structures that use chips as collateral for long-dated loans have introduced another question for investors. Because semiconductors depreciate over time, a mismatch could develop between the value of the assets and the financing supporting them. Jurrien emphasized that none of these risks appears imminent. However, he believes they are important considerations for investors as the AI buildout continues.

Diversification and Canada's appeal

One of the more notable developments in today's market has been the changing relationship between AI-related and non-AI-related stocks. According to Jurrien, the correlation between these groups has turned negative. On days when AI stocks decline, the rest of the market has often outperformed and, in some cases, risen in absolute terms. That dynamic may offer diversification opportunities for investors concerned about concentration risk. Canada is one area he highlighted. Using a discounted cash flow framework, Jurrien noted that Canada ranks among the leading markets in terms of growth in shareholder payouts through dividends and buybacks. Canada's payout ratio is also around 90%, compared with significantly lower levels among many large U.S. technology companies, where cash flows are increasingly being directed toward capital expenditures. For a bull market approaching its fifth year, and a secular bull market that has been in place much longer, broader market participation may help extend the cycle's durability.

Conclusion: A broader, more resilient market with risks worth watching