This essay was originally published in DailyWealth Trader, a daily trading advisory, and has been adapted. To learn more about this service, click here.
AI was the story for most of 2025.
If you didn't have exposure to names like Microsoft (MSFT), Nvidia (NVDA), or Meta Platforms (META), your stock portfolio likely struggled.
These stocks were up 29%, 50%, and 29%, respectively, from the end of 2024 into late October. Most of the "Magnificent Seven" stocks were leading the rally... while other stocks fell far behind.
And that sparked fear in the markets...
Investors worried the market would crash if the AI trade stopped working. But that hasn't been the case at all...
Microsoft is down 28% since October. Nvidia is down 7%. And Meta Platforms is down 15%. Yet, the S&P 500 Index is flat.
That means the very few AI stocks that dominated 2025 are falling behind. The "other 493" are picking up the slack. That's a big shift you should pay attention to.
This is good news for two reasons...
History Suggests Broad Gains Ahead
First, this happens in a healthy market. We want to see lots of stocks performing well, not just a few.
And second, it means that stocks and sectors that were losing in 2025 are likely to become winners in 2026.
We can see this through a simple ratio comparing the S&P 500 Equal Weight Index and the S&P 500.
You see, the standard S&P 500 is a market-cap-weighted index. So the biggest stocks matter most since they have the largest weighting.
Meanwhile, the "equal weight" version tracks the same stocks... but weights them the same, regardless of their size. That means the AI giants don't end up with a bigger impact.
When the ratio sits at 1, both these indexes are performing equally. If only the largest companies are performing well, though, the S&P 500 will outperform the equal-weight index... and the ratio will fall.
That's what we saw through the first 10 months of 2025. The standard index was up 18.4%. And the equal-weight version was up 10.3%.
But the roles are reversing. Since October, the equal-weight index is up about 8.5% while the S&P 500 is roughly flat.
This is driving the ratio out of its downward range...
Now, this ratio has been falling for years. So far, reversals haven't usually lasted long. But with the trend breaking out of its downward channel, this change could be here to stay in 2026.
If so, stocks outside of the AI giants will have a big year.
We saw a similar reversal in the 2000s. From early 2003 into 2007, the equal-weight index was outperforming the S&P 500. Check it out...
The S&P 500 was up 104% from mid-March 2003 until its peak in October 2007. That's a strong rally. But the equal-weight index was up 126%.
That meant the rally extended far beyond a few high-flying technology names. Materials stocks were up 164%. Small-cap stocks were up 149%. And energy stocks were up 278%.
In short, you want to own more than just the AI giants of 2025. The rally is spreading in a healthy way.
And if this ratio keeps climbing from here, we could enter another 2000s-style rally.
Good investing,
Chris Igou
Further Reading
"Whatever just happened will probably keep on happening," Brett Eversole writes. And when stocks rise in January, history shows returns tend to build from there – a signal that favors sticking with the trend.
The economy isn't moving in one direction. Higher-income consumers are spending freely, while lower-income households are tightening their budgets. And investors who recognize this split can prepare for gains on either side of the "K-shaped economy."
