If you have the feeling that this year’s boom in the tech sector—and the corresponding record highs in the major averages—isn’t being felt on a market-wide basis, you’re not imagining it.
As it turns out, the record lift in the Nasdaq and S&P is being driven by a troublingly small number of stocks. The result of this narrowing market is that value-focused investors like us have been forced to exercise patience while waiting for the boom to visit our corner of the market (more on that in a minute).
A recent headline in the Financial Times tells the story: “Wall Street rebound driven by smallest number of stocks on record.” Understandably, the lack of broad participation has prompted warnings from analysts over the rally’s fragility.
According to FT, the narrowing bull market is being led by just a tiny handful of mega-cap names, including Alphabet (GOOG), Nvidia (NVDA), Amazon (AMZN) and Apple (AAPL). In other words—and to absolutely no one’s surprise—the AI infrastructure and hyperscaler giants are doing most of the lifting.
I addressed this phenomenon in a recent issue of the Cabot Turnaround Letter as expressed in the question: Can the AI stocks alone keep the bull market intact? My answer was in the affirmative, and I still believe the enormous liquidity the AI buildout necessitates will likely suffice to keep the broad bull market alive for the rest of this year.
But that doesn’t necessarily mean it will be smooth sailing for other areas of the market—including some of the industries favored by value/turnaround-focused investors right now.
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The market’s narrow focus is reflected to a degree in the Cabot Turnaround Letter portfolio, which shows that stocks with direct (or even indirect) exposure to the AI buildout are outperforming. Most of the market’s strongest stocks are in the semiconductor space, so it’s no surprise that Intel (INTC) is one of our top performers (up 464% since we recommended it last April), with Reuters noting that corporate profit growth in chip firms is running at its best pace in several years, thanks largely to AI-related contract wins.
Indeed, the broader info tech sector is responsible for most of this year’s market strength, with support from the materials sector. This is reflected in 2026 earnings estimates for each of the S&P 500’s 11 sectors, as shown in the chart below, with the earnings contribution for several of those sectors paltry in comparison to the info tech space.
Source: FactSet via Investor’s Business Daily
Of course, this begs the question of how long the bull market can hold up with so relatively few participants doing most of the heavy work? But, as the FT article noted, the possibility also exists for earnings participation to broaden out to other, currently overlooked, industries like consumer staples, real estate and others.
For now, though, investors are still willing to pay “premium valuations for perceived long-duration growth assets,” in the article’s words. But as long as this remains the case—with liquidity remaining ample and boosted by heavy government spending to boot—the argument can be made that the bull remains on a reasonably firm footing.
On a related note, Berkshire Hathaway’s (BRK.B) new CEO, Greg Abel, told investors in his company to “be patient” when it comes to capital deployment in the current market environment. Berkshire is currently sitting on a record $400 billion cash pile, mainly in the form of U.S. Treasuries, as it waits for what it views as more “attractive” prices in the equity market while avoiding “subpar opportunities.”
Abel’s reticence to deploy large sums of his company’s capital right now stems from his view that the market is too heavily reliant on mega-cap and AI leaders, while also seeing private equity and infrastructure assets as being “expensive.” Moreover, he apparently considers the intensifying competition for M&A as being too intense for his liking.
Moreover, according to Abel, Berkshire is willing to sit on its record war chest for a prolonged period if it views the market as being “overheated.” That said, it’s reassuring that one of the world’s premier value investors is seeing the same lack of participation—and opportunities—in this highly concentrated market.
For my part, I, too, have noticed how increasingly difficult it has become to find the proverbial low-hanging fruit in this environment when searching for turnaround prospects. That said, we’re still finding the best possible opportunities for the Turnaround Letter portfolio—even in the face of the market’s present limitations.
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