Market commentary

A clear read on global markets

Casey Sprake

Chief Market Strategist · AG Capital

For much of the past two years, the message from US equity markets seemed remarkably straightforward. The S&P 500 was rising. Technology companies were booming. Artificial intelligence had captured the imagination of investors and policymakers alike, promising a productivity revolution that could reshape entire industries.

 

If you looked only at the headline S&P 500 index, the conclusion appeared obvious: the market was healthy, strong, and riding the wave of a new technological era.

 

However, markets, as they often do, were telling two stories at once.

 

The first story was the one everyone saw - the rising index, the excitement around AI, and the sense that US equities were entering a new phase of structural growth.

 

The second story, however, was somewhat less obvious. While the S&P 500 was climbing, the drivers of that rise were becoming increasingly narrow. A very small group of companies - the now-famous Magnificent Seven (Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta and Tesla) were doing the overwhelming majority of the heavy lifting.

 

The rise of artificial intelligence, expectations of rapid productivity gains, and the extraordinary profitability of the largest technology firms combined to create one of the most powerful equity leadership stories of the modern era. Capital flowed relentlessly into these companies, both through active positioning and passive investment vehicles that increasingly allocated capital to the largest names in the index.

 

From a distance, the result looked like a remarkably healthy market. The S&P 500 climbed steadily higher, volatility remained contained, and the dominant narrative centred around innovation, technology, and growth. However, when seven companies account for such a large share of market performance, the index can start to resemble less a broad market and more a very concentrated bet.

 

 

One of the defining features of the recent equity cycle has been the extraordinary concentration of market leadership. While the S&P 500 is designed to represent a broad cross-section of the US economy, the performance of the index became increasingly dependent on a very small group of companies.

 

At the peak of the rally, the Magnificent Seven accounted for roughly a third of the entire market capitalisation of the S&P 500 - an extraordinary level of concentration by historical standards. Broaden that to the ten largest companies, and the concentration approached 40% of the index, the highest level in decades.

Source: Bloomberg, AG Capital

The above chart illustrates just how dramatic that concentration became. Over time, the largest companies in the index have naturally gained weight as their market capitalisations expanded. However, the acceleration over the past few years has been particularly striking.

 

By 2025, seven companies collectively represented a share of the index that would have been almost unimaginable a decade earlier.

 

This meant that the overall performance of the S&P 500 increasingly depended on the fortunes of just a handful of companies. Strong earnings from Nvidia or Microsoft could lift the entire index. Conversely, weakness in one or two of these names had the potential to pull the broader market lower.

*2026 data as of 2 March: Source Bloomberg, AG Capital

In effect, the market had become far less diversified than the headline index might suggest. Moreover, that concentration had another important consequence: it distorted how investors interpreted valuations.

 

 

During the height of the recent AI-driven rally, one of the most common observations from investors was that the US equity market looked expensive. Traditional valuation metrics (particularly forward price-to-earnings ratios) suggested that the S&P 500 was trading at a historically elevated multiple.

 

However, those headline metrics concealed an important distinction.

 

Much of the perceived expensiveness of the US market was concentrated within the Magnificent Seven themselves. When the S&P 500 is calculated including the Magnificent Seven, the valuation multiple rises significantly, reflecting the premium investors were willing to pay for the anticipated growth of the largest technology firms.

 

However, when those seven companies are excluded from the calculation, the remainder of the index appears far more reasonably valued. In other words, the broader market was not nearly as stretched as many headlines suggested. Instead, the premium valuations were largely concentrated in the handful of companies that had become synonymous with the AI revolution.

 

This dynamic created an interesting tension within the market.

 

On the one hand, investors were increasingly enthusiastic about the transformative potential of artificial intelligence and digital infrastructure. On the other hand, that enthusiasm was becoming embedded in the valuations of a very small group of companies.

 

Whenever markets become this concentrated, the risk profile begins to change. Over the past six months, there have been growing signs that the structure of the market is beginning to evolve.

 

While the Magnificent Seven remain some of the most powerful companies in the global economy, their dominance in driving market returns has begun to soften. In fact, recent performance data shows that several of these companies have started to lag the broader market. Despite dominating headlines and market performance over the previous two years, several of the Magnificent Seven have underperformed the broader S&P 500 more recently.

 

What is important here is that this shift has not necessarily resulted in a dramatic decline in the overall market index. Instead, what we are witnessing is something more subtle.

 

The value of the market has not changed dramatically- the structure of that value has begun to shift. Rather than being concentrated almost entirely in a handful of mega-cap technology companies, capital is gradually redistributing across a wider set of companies and sectors.

Source: Bloomberg, AG Capital

Understanding why this shift is occurring requires consideration not only of the increasingly volatile geo-political environment, but further at the enormous investment cycle that has taken place within the technology sector.

 

 

Over the past two years, the Magnificent Seven have embarked on one of the largest corporate investment cycles in modern history. Billions of dollars have been directed towards data centres; semiconductor infrastructure; cloud computing expansion; artificial intelligence model development and advanced computing hardware. The scale of this spending has been extraordinary. In many ways, it represents the physical infrastructure build-out required to support the next phase of digital transformation.

 

One of the more revealing charts circulating in recent weeks highlights just how uneven AI-related spending has been among the Magnificent Seven.

 

The below chart shows a striking contrast.

 

Companies such as Microsoft, Amazon, Meta and Google have dramatically ramped up capital expenditure in order to build out AI infrastructure and cloud computing capabilities.

 

Meanwhile, Apple’s capital spending remains comparatively modest.

Source: Bloomberg, AG Capital

While many of its peers are building the infrastructure backbone of the AI economy, Apple has taken a different approach. Rather than building the infrastructure layer of AI, Apple has historically focused on hardware integration and consumer-facing applications.

 

In other words, while some companies are building the roads and power stations of the AI economy, Apple is more focused on designing the devices that sit on top of that infrastructure.

 

The divergence is striking, and it serves to highlight an increasingly important question. Whenever companies embark on investment cycles of this magnitude, markets eventually begin to ask something very simple:

 

When does the return on that investment begin to show up?

 

In the early phases of the AI boom, investors were willing to give companies considerable leeway. The assumption was that the long-term productivity gains from artificial intelligence would ultimately justify the heavy capital expenditure.

 

Markets were pricing the promise.

 

However more recently, investors have begun to focus more closely on the timeline between spending and profitability. The question is no longer simply whether AI will reshape the economy -it almost certainly will- but rather how quickly that transformation will translate into earnings growth. When markets begin to question whether the spending cycle has run ahead of the revenue opportunity, those same companies can become more vulnerable to a correction.

 

 

Taken together, these developments help explain why market leadership has begun to shift. As the Magnificent Seven move from the excitement phase of the AI cycle toward the delivery phase, investors are increasingly looking beyond the narrow group of companies that dominated the earlier rally.

 

Capital is gradually rotating into:

 

• Industrial companies benefiting from infrastructure spending

 

• Financial firms benefiting from higher rates

 

• Energy companies supported by commodity dynamics

 

• Smaller technology companies that may benefit indirectly from AI adoption

*as of end Feb 2026, Source: Bloomberg, AG Capital

Nevertheless, this does not mean the Magnificent Seven are no longer important. In fact, far from it.

 

They remain among the most profitable and innovative companies in the world. However, markets rarely reward the same leadership group indefinitely. When valuations become stretched, expectations become elevated, and investment cycles mature, the leadership of the market often broadens.

 

 

Periods of narrow market leadership tend to favour passive investing. When a small group of companies consistently outperforms, simply owning the index can deliver strong returns. The dominance of the Magnificent Seven over the past two years is a perfect example of this dynamic.

 

However, when the structure of the market begins to change, hitherto he investment environment changes with it. As expectations around AI spending are recalibrated and capital begins rotating across sectors, market dispersion increases. Different stocks begin to move differently, sectors rotate in and out of favour, and opportunities emerge across a broader set of companies.

 

In environments characterised by rising dispersion, active strategies often have a significant advantage. Rather than simply owning the index and accepting its concentration, investors can selectively allocate capital toward areas of the market where opportunities are emerging.

 

Flexible strategies are particularly well positioned in this type of environment.

 

Hedge funds, for example, are not constrained to hold the index as it is constructed. They have the ability to reduce exposure to crowded trades, reposition capital as new leadership emerges, and capture relative value opportunities between sectors and companies.

 

At AG Capital, this shift in market structure has created a particularly fertile hunting ground.

 

As capital has rotated away from the most crowded trades and into a broader opportunity set, strategies that can actively reposition portfolios have been able to capture that dispersion.

 

Rather than being forced to hold the same mega-cap leaders that dominate the index, flexible strategies can pursue opportunities across sectors, themes and regions. This type of environment (where leadership broadens and valuation dispersion increases) is precisely the one in which active strategies tend to perform best.

 

The Renegade Fund has benefited from this changing structure, capturing opportunities created by the rotation beneath the surface of the market:

As leadership rotates and expectations are reset, flexibility becomes an increasingly powerful advantage. The market is moving from an era defined by a narrow group of technology giants to one where participation is broadening and dispersion is rising - an environment where active management tends to thrive.

 

For much of the past two years, seven companies carried the market. The next phase may look very different. The opportunity will lie with investors who can see beyond the index and position for the shifts happening underneath it.