Over the past few years, investors have experienced one of the strongest market runs in recent history. Technology giants drove massive growth, artificial intelligence reshaped investment narratives, and market concentration reached levels rarely seen before.

But as we move into 2026, the conversation is changing.

Instead of asking “How high can tech go?”, investors are now asking:

• Are markets becoming too concentrated?
  
• Is AI spending creating new risks?
  
• Where are the next opportunities beyond big tech?
  

In our annual State of the Union, we will review what worked last year, what changed during market volatility, and how portfolios are being repositioned for the year ahead.

Looking Back: What Happened in the Market Last Year

The previous year delivered strong equity performance, largely led by mega-cap technology companies — often referred to as the “Mag Seven” (and now expanding toward a broader “Great Eight” including to include Broadcom.)

Key portfolio adjustments included:
✅ Strategic profit-taking from overweight technology positions
✅ Rotation into undervalued sectors like industrials and financials
✅ Defensive positioning ahead of market volatility

Rather than chasing momentum, our team focuses on balancing growth with risk management.

When market turbulence arrived — especially during tariff concerns and AI uncertainty — this positioning proved critical.

The Power of Downside Protection

One of the most important lessons from recent market movements is simple:

Successful investing is not only about capturing gains — it’s about limiting losses.

During a major market drawdown in 2025:

• The broader market declined roughly 14%
  
• Our risk-adjusted, balanced portfolios declined around 7%
  

By reducing downside exposure,we preserved capital and gained the flexibility to invest when opportunities appeared.

This allowed strategic buying of undervalued semiconductor and technology companies when fear — not fundamentals — drove prices down.

The result?

Strong participation in the recovery while maintaining controlled risk.

Why Timing the Market Rarely Works

Many investors try to predict market tops or bottoms. However, markets historically continue rising even when sentiment becomes cautious.

Instead of market timing, our portfolio management focuses on:

• Identifying trends
  
• Monitoring valuations
  
• Rebalancing positions
  
• Managing exposure discipline
  

Think of it like fashion trends — you don’t guess styles years in advance; you adapt as trends become visible. 

The Big Risk in Today’s Market: Concentration

One of the most important themes entering 2026 is market concentration.

A small group of mega-cap companies now represents a significant portion of major indexes. Because indexes are market-cap weighted, a handful of trillion-dollar companies heavily influence overall performance.

This creates two realities:

1. These companies remain strong businesses

Many continue delivering double-digit revenue growth.

2. Valuations are historically elevated

Higher valuations mean greater sensitivity during volatility.

This doesn’t mean abandoning technology exposure — it means maintaining balanced allocation rather than over-concentration.

AI Investing: Opportunity or Overinvestment?

Artificial Intelligence continues to dominate corporate strategy.

Major companies are investing billions into AI infrastructure, cloud computing, and advanced chips. While this innovation drives long-term growth, markets are beginning to question:

• How quickly will companies see returns?
  
• Are AI investments already priced into stocks?
  
• Could spending pressure short-term profitability?
  

Recent market reactions show investors rewarding strong earnings — but also scrutinizing aggressive AI spending plans.

This signals a maturing phase of the AI investment cycle.

The Market Is Broadening Beyond Big Tech

A major shift is already emerging.

While technology dominated previous years, recent performance shows strength expanding into:

• Industrials
  
• Energy
  
• Healthcare
  
• Materials
  
• Value-oriented companies
  

This “market broadening” is often a healthy sign because sustainable bull markets typically require participation from multiple sectors — not just a few dominant stocks.

Value and dividend-focused strategies have already begun outperforming in early market cycles.

Why Portfolio Diversification Matters More Than Ever

Diversification today is not just about owning many stocks — it’s about owning different types of opportunities. It’s about correlation.

• Growth exposure for innovation-driven upside
  
• Value investments for stability
  
• Dividend strategies for income resilience
  
• Defensive positioning to reduce volatility
  

The goal is clear:

Participate strongly in market gains while reducing the emotional and financial impact of downturns.

Over longer periods, this approach has historically delivered consistent annualized returns aligned with inflation-plus growth objectives.

Long-Term Investing Still Wins

Despite short-term volatility, long-term data continues to support disciplined investing, but this doesn’t mean buy and hold.

Risk-adjusted, balanced portfolios over multi-year periods have achieved:

• Approximately 7–11% annualized returns
  
• Reduced downside participation
  
• Strong recovery participation during bull markets
  

The key takeaway is not predicting every market move — but building strategies that work across different environments.

What Investors Should Watch in 2026

Here are the major themes shaping the year ahead:

✔ Continued AI innovation — but with valuation scrutiny
✔ Broader market leadership beyond mega-cap tech
✔ Opportunities in undervalued sectors
✔ Increased importance of risk-adjusted returns
✔ Portfolio discipline over speculation

Frequently Asked Questions (FAQs)

1. Is the tech sector still a good investment in 2026?

Yes, but allocation matters. Technology remains important, but excessive concentration increases risk. Balanced exposure is key.

2. What does “market broadening” mean?

It refers to more sectors participating in market growth rather than gains being driven by only a few large companies.

3. Should individuals worry about an AI bubble?

Not necessarily. AI is transformational, but markets are becoming more selective about valuation and profitability timelines. Our team is watching all for you, so you don’t have to worry. 

However, if your accounts are elsewhere, it would be a good idea to do a risk review to see how overweighted you are to the Great Eight which could mean great risk if there is an AI bubble burst.

4. Why is downside protection important?

Limiting losses allows faster recovery and the ability to take advantage of buying opportunities during market corrections.

5. Is now a bad time to invest after strong market years?

Historically, strong markets often continue higher. Strategic allocation matters more than market timing.

6. What is the ideal investment strategy today?

A risk-adjusted approach combining growth, value, income, and risk management strategies tailored to long-term goals.

7. What about interest rates?

The markets are expecting additional rate cuts this year, but there is a range on what that would look like with new Fed leadership. As with anything, there are winners and losers when rates fall. For retirees, rates falling mean less opportunities for fixed rates or good returns in principal protected accounts. Check out this blog for more on this and how you can take advantage of higher rates now.

Final Thoughts

The investing environment is evolving.

The next phase of the market may not be defined solely by big tech dominance but by broader participation, disciplined allocation, and strategic risk management.

Managers who focus on risk-adjusted and balanced portfolios — rather than hype — are likely to be best positioned for long-term success.