By Tim Courtney, Chief Investment Officer

For more than a decade, U.S. large-cap stocks have been the place to be. We all know the names of the technology and communications companies which have driven overall market returns.¹ However, since late October that leadership has paused. U.S. large-cap growth stocks were nearing correction territory as of March 2nd, down roughly 7.5%.² The S&P 500 is essentially flat over that same period.²

At the same time, other parts of the market were moving higher. Large and small value stocks, including financials, industrials, energy and consumer staples, were up 10%.² Small-cap core stocks are up 6%,² and international markets are up 10%-15%.² Real assets have participated as well, with U.S. real estate up about 9%², master limited partnerships (MLPs) up 22%² and commodities up 10%.²

Many of the growth companies most associated with building out AI have been underperforming. The companies now posting stronger returns are the ones likely to benefit from applying AI across their businesses and gaining efficiencies.³ It may be that the market is shifting its attention from companies building the tool to those that can utilize the tool.

Short-term trends are difficult to forecast and we are not making a prediction about the next year. But this recent market behavior shows that we cannot control when we will be rewarded for investments in a specific asset. We have to be present and in our seats when it happens. What we can control is whether we are diversified across multiple productive areas of the market, each with its own behavior and a reasonable long-term expected return.

The only way to consistently capture changing leadership is to be diversified across all types of stocks. Holding large-cap, small-cap, value, international stocks and real assets allows portfolios to participate when different areas of the market have their turn. It also reduces reliance on a narrow group of companies.

A nearly 20% return gap between asset classes opened up in just four months² – almost within the time frame we receive quarterly account statements and without warning. Capturing the current leaders’ performance means remaining disciplined and broadly invested. If you have any questions, please reach out to your Exencial advisor.

Sources:

1. Statista (1/6/26) - Wider tech sector led S&P 500 to another double-digit gain
2. Morningstar Direct (data as of 3/3/26) - Returns by asset class
3. Morningstar (2/23/26) - 6 stocks driving the 2026 US stock market rotation

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