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After years of AI-driven concentration, 2026 is off to a promising start for diversification, with the Magnificent Seven lagging while value sectors, small caps, and foreign stocks surge on the back of global reflation and investor appetite for non-AI exposures.

What caught our eyes this week

A dash for diversification

In early innings, 2026 looks like another good year for diversification. Heightened attention is now being paid to artificial intelligence exposure in portfolios—both to the disruptors and to the potentially disrupted. The Magnificent Seven have gone from leaders to laggards, collectively down 11% from their October high. The S&P 500 is about flat on the year, having churned in place at the headline level for over three months. Meanwhile, value sectors like energy, materials, and consumer staples, as well as small caps and foreign stocks, are all off to a strong start. Part of the story here appears to be a global reflationary trade as economic indicators around the world start to perk up. The added tailwind of a hunt for non-AI exposure is supercharging the moves in pockets of the market that went unloved for a long time. Although we believe many of the AI-related fears that have gripped the market narrative are likely overblown, we’re nonetheless encouraged to see this broadening performance and view the rotation as a sign of healthy market behavior.

Graph showing year-to-date total returns for the S&P 500, International, Large Cap Value, Emerging Markets, and Small Caps

CHART OF THE WEEK: iShares Russell 2000 ETF, iShares MSCI EAFE ETF, iShares MSCI Emerging Markets ETF, iShares Russell 1000 Value ETF, Vanguard 500 Index ETF return through 2/13/2026. Ycharts, Cerity Partners. Collective drawdown of the Magnificent Seven is as represented by the MAGS ETF.

Past performance does not guarantee future results.

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