Beyond Big Tech: 4 Reasons Market Leadership Is Broadening
From the Magnificent Seven to the Durable 493
While prominent market skeptics are warning that the AI-led rally shows bubble-like traits driven by concentration, capital spending, and high valuations, the current move away from tech has far less to do with fear, and far more to do with clear, measurable trends.
After three strong years of gains, slower momentum and higher volatility are normal. The AI-driven phase of this cycle began in late 2022, shortly after OpenAI released ChatGPT and markets bottomed. U.S. stocks then delivered an unusually powerful run led by mega-cap technology. The recent cooling in tech alongside improving performance elsewhere does not signal the end of the bull market. It signals a shift in leadership.
Since last October, the Nasdaq, the S&P 500, and most Magnificent Seven stocks have largely moved sideways and are only modestly higher year to date. Large-cap tech has stalled, with the tech sector down a few percentage points so far this year. Meanwhile, other parts of the market have stepped up. What we’ve coined the “Durable 493.” Health care, real estate, consumer discretionary, consumer staples, industrials, materials, and energy are all up roughly 2% to 9% year to date. Leadership is rotating across the S&P 500’s sectors, not disappearing. See chart below.
This shift creates a structural portfolio reality. After such a powerful run, many allocations are now more concentrated in tech than originally intended. That concentration increases volatility and narrows future return paths. This is not a call to abandon technology or predict a bubble. It’s a reminder that diversification works best when it is applied before markets force the issue. For investors approaching or in retirement, managing concentration risk matters more than capturing the last dollar of upside. Long-term planning should feel disciplined, not like a high-stakes table game in Vegas.
Magnificent Seven: A Brief History
Coined by Wall Street strategists in early 2023, the term Magnificent Seven quickly became shorthand for the stocks driving the AI-led rally: Meta, Microsoft, Apple, Alphabet, Amazon, Nvidia, and Tesla. Together, they accounted for the bulk of U.S. equity returns during this phase of the cycle.
The name likely nods to the 1960 Western The Magnificent Seven, starring Yul Brynner, Steve McQueen, and Charles Bronson, later remade in 2016 with Denzel Washington and Ethan Hawke. A small, elite group doing the heavy lifting for everyone else. The metaphor fit.
Over the past several months, however, most of the Magnificent Seven have either underperformed the broader market or moved sideways. Alphabet and Nvidia have shown greater resilience, while others have lagged. That does not invalidate the AI story. It reflects what typically follows periods of extreme concentration. Leadership pauses, then spreads.
What matters now is investor behavior. Some remain heavily concentrated in last cycle’s winners, assuming volatility will resolve itself. More disciplined investors are taking a different approach. They’re trimming recent winners and reallocating across the rest of the market. Capital is rotating into cyclicals, value stocks, small caps, international markets, gold, and even bonds. Recent Fed rate cuts helped accelerate this process. This is not panic selling or 1999 déjà vu. It’s the kind of repositioning that often follows outsized gains and helps extend market cycles rather than end them.
The Great Rotation
Rotation is often a sign of confidence, not fear. When investors believe the economy can continue to grow, they broaden exposure instead of hiding in a narrow group of winners. Markets get healthier as participation widens. As we discussed in our 2026 Outlook, the bull market doesn’t need to sprint. It just needs more runners.
That shift showed up quietly in the fourth quarter of 2025. After gaining roughly +64% in 2024 and another +23% in 2025, Magnificent Seven -heavy strategies suddenly stalled as represented by the MAGS (Mag 7 ETF). Over the same period, the DJIA Dow Jones and S&P 500 indexes continued to move higher, and equal-weight approaches outperformed cap-weighted ones. When leadership pauses but the market still advances, it signals a handoff, not a loss of confidence. The market didn’t fall because its biggest winners rested. Other parts of the index stepped in and did the work.
Imaging eating the same food group or the same diet for three years. For years, portfolios kept ordering from the same corner of the menu because little else worked. Growth was scarce. Rates were rising. Certainty was expensive. Mega-cap tech offered earnings visibility, balance-sheet strength, and powerful secular tailwinds. Concentration wasn’t reckless. It was adaptive.
But markets, like bodies, don’t thrive on the same diet indefinitely. The S&P 500 isn’t a seven-item menu. It holds hundreds of companies across industries, sizes, and economic sensitivities. Relying on a narrow slice of that opportunity set works for a time. Eventually, it creates imbalance. Not because the dominant stocks suddenly become bad businesses, but because variety matters. It’s like eating dinner at the same restaurant every night and rotating through a few familiar dishes. You may change the plate, but the nutrition doesn’t change.
4 Reasons Market Leadership Is Broadening
First, rebalancing has become unavoidable. After three years of outsized gains, many portfolios drifted well beyond long-term targets. Wall street institutions aren’t selling out of tech. They’re trimming excess. This is mechanical, not emotional. When seven stocks quietly grow to represent roughly a third or more of the index, risk committees intervene.
Second, new money that was sitting on the sidelines and now being deployed is behaving differently. Fresh equity inflows are no longer defaulting to the same handful of names. Incremental capital is spreading across sectors, factors, and regions that lagged during the tech-led run. Leadership broadens when opportunity broadens.
Third, lower interest rates are changing the math. Falling rates still support technology, but they disproportionately benefit areas of the market that were penalized by higher financing costs. Industrials, financials, small caps, and other rate-sensitive sectors tend to reprice faster off lower bases. A stock trading at 30 times earnings may still perform well. A stock trading at 14 times has more room to surprise.
Fourth, expectations for technology are normalizing, not collapsing. Most investors still expect tech and AI to lead in 2026, just at a slower pace. After a 64% year followed by a 23% year, even modest deceleration encourages diversification. That isn’t bearish. It’s rational.
This rotation is often mischaracterized as fear. It isn’t. Institutional investors aren’t reacting to 1999 comparisons or abandoning innovation. They’re responding to concentration, valuation sensitivity, and forward-looking returns. The scale of AI-related capital spending has also changed how returns are evaluated. Earnings remain strong, but margins, free-cash-flow timing, and capital discipline now matter more than raw growth. That’s the natural evolution of a maturing cycle.
The Armageddon Chorus
Every market cycle attracts its skeptics. Michael Burry, best known from The Big Short, has been among the loudest, warning that the AI-led rally shows bubble-like traits tied to concentration, aggressive capital spending, and speculation. He has publicly shorted parts of the AI complex and narrowed his focus around that view. Others, including Jeremy Grantham, Bill Gross, and Ruchir Sharma, have raised similar concerns around valuations and crowding.
These warnings grab attention because they always do. But they are better understood as reminders about risk and positioning, not precise market-timing signals. Markets rarely end because skeptics speak up. They end when excess goes unchecked. Good to point out that almost 100% of economists and the financial ‘experts’ have been wrong about their doom and gloom recession warnings every year since 2020. We are not being contrarian, just following the actual data.
Recent rate cuts helped accelerate the rotation. Lower rates still support long-duration growth, but they also reduce the need to hide there. Early in a cycle, falling rates reward scarcity. Later on, they revive opportunity elsewhere by easing financing conditions and improving balance-sheet resilience. Capital follows that shift.
This transition didn’t start with retail investors. Institutions led it, as they usually do, trimming excess and reallocating incrementally. Retail investors tend to follow with a lag, often by taking gains after large wins and repositioning rather than exiting altogether. That timing gap explains why rotations often feel sudden even when they’ve been building quietly for months.
Today’s market also differs in important ways from past bubbles. Earnings are real. Cash flows exist. Balance sheets are strong. Investors are not betting on thousands of 90’s IPO;s with unsustainable balance sheets like pets. Com. Capital spending is high, which pressures margins rather than inventing profits. This isn’t excess built on fantasy. It’s excess built on concentration.
Seven feels complete because it simplifies complexity. But markets are not stable systems. What feels sufficient in one phase often proves narrow in the next. The lesson investors are relearning isn’t that the Magnificent Seven failed. It’s that no small group can carry a growing market indefinitely. While it may take time for earnings to fully justify the scale of AI-related capital spending (CAP-X) and circular financing, other parts of the market already offer better balance and more reasonable valuations.
Bottom line: This environment rewards discipline over drama. Broad diversification matters more after periods of narrow leadership. Rebalancing matters more after outsized gains. The 4 Reasons Market Leadership Is Broadening is not a signal to abandon risk. It’s a market to manage it. And we’re not watching the Magnificent Seven fail. We’re watching the market grow up.
For more information on our firm or to request a complimentary investment and retirement check-up, call (561) 210-7887 or email jon.ulin@ulinwealth.com.
Author: Jon Ulin, CFP® is the founder and Managing Principal of Ulin & Co. Wealth Management, an independent advisory firm based in South Florida for over 20 years. As a fiduciary wealth advisor, Jon helps successful individuals, families, and business owners nationwide with multi-generational planning, investment management, and retirement strategies. Learn more about Jon and our team at About/CV.
Note: Diversification does not ensure a profit or guarantee against loss. You cannot invest directly in an index.
Information provided on tax and estate planning is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
You cannot invest directly in an index. Past performance is no guarantee of future returns. Diversification does not ensure a profit or guarantee against loss. All examples and charts shown are hypothetical used for illustrative purposes only and do not represent any actual investment. The information given herein is taken from sources that are believed to be reliable, but it is not guaranteed by us as to accuracy or completeness. This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as NewEdge Advisors, LLC does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors.
