Insights

2025 Year-End Market Perspective

January 7, 2026

As we head into 2026, artificial intelligence continues to dominate market headlines. Nearly three years have passed since the launch of ChatGPT brought AI into the mainstream and sparked a surge in investment across the technology sector. Since then, spending has accelerated quickly, with companies pouring capital into data centers, specialized chips, cloud infrastructure, and the energy and networking systems required to support large-scale AI models. The so-called “Magnificent Seven”, seven of the index’s largest technology companies, now account for roughly 35% of the index.

Whenever markets become this narrowly led, it naturally raises questions—and comparisons to past periods of excess. One helpful reminder comes from the early 2000s. When the dot-com bubble burst in 2000, large growth stocks struggled for years. Over the next five years, the largest U.S. companies declined meaningfully, while small-cap stocks moved in the opposite direction, delivering positive returns. International stocks also held up better than U.S. markets during that period. Investors who were broadly diversified had a far less turbulent experience than those concentrated in the market’s biggest names.

We’re not suggesting history will repeat itself. But it does highlight an important reality: market leadership changes, often when least expected.

Rather than trying to guess how long this enthusiasm will last, we’re staying focused on what we can control: building portfolios designed to hold up across many different market environments.

A few observations continue to guide our approach:

AI investment is enormous and concentrated.

The largest technology companies are spending hundreds of billions of dollars on AI infrastructure, including data centers, advanced semiconductors, cloud platforms, and related hardware. As a result, a relatively small group of mega-cap stocks has been driving a large share of recent market performance.

Market leadership has narrowed.

Today, a handful of large growth companies make up a significant portion of the S&P 500. That concentration means investors who simply follow the index may be more exposed to a small group of stocks than they realize.

Leadership doesn’t stay the same forever.

History offers a helpful reminder. After the dot-com bubble burst in 2000, many large growth stocks struggled for years. In contrast, small-cap stocks produced positive returns over the following five years, and international markets outperformed the U.S. Investors who were broadly diversified experienced a much smoother ride.

Diversification matters while markets are unfolding.

Market excesses are only obvious after the fact, but diversification helps manage risk along the way, without needing to predict when or why leadership will change.

Why we emphasize small-cap value.

We intentionally tilt portfolios toward smaller, attractively priced companies and other well-researched investment factors. This helps:

• Avoid overreliance on any single market theme
• Position portfolios to benefit if leadership broadens
• Support long-term results across different market conditions

We’re not trying to time the market or call the next big winner. Instead, we stay disciplined, diversified, and focused on your long-term goals—not the latest headlines.

As the new year begins, if you have questions or want to talk about how your portfolio is positioned, please don’t hesitate to reach out.

As always, we thank you for your continued trust and partnership.

THE LOURDMURRAY TEAM