How much is Mag 7 driving U.S. stock market?

Key Concepts

• Global Bull Market: A sustained period of rising stock prices across multiple international markets, not solely concentrated in the US.
• Mag 7: The seven largest US technology companies (likely referencing Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta) that have significantly driven market gains.
• Rotation: The shifting of investment capital between different sectors of the market, indicating a broadening of market participation beyond a few leading stocks.
• Cyclicals: Industries whose performance is closely tied to the economic cycle (e.g., Industrials, Financials, Materials, Energy).
• Peak-to-Trough Correction: The percentage decline in a market from its highest point to its lowest point during a downturn.
• Gridlock: A political situation where no single party has sufficient control to enact its agenda, often considered positive for markets.

Market Outlook for 2026 & Beyond

Ryan Dietrich, Chief Market Strategist at Carson Group, maintains a bullish outlook on global markets heading into 2026, despite concerns regarding tariffs and potential bubbles, particularly in AI. The Carson Investor research team’s 2026 outlook is titled “Riding the Wave,” emphasizing the positive forces of monetary policy, fiscal policy, and AI-related capital expenditure (capex). While acknowledging the US market’s recent highs, Dietrich stresses that this is a global bull market, with strong performance also observed in Asia, Canada, and Europe.

Broadening Market Participation & The Mag 7

A key point Dietrich emphasizes is that the US market’s gains are no longer solely attributable to the “Mag 7” technology stocks. In 2025, the remaining 493 stocks in the S&P 500 accounted for over 10% of the gains, while the Mag 7 contributed only 7%. This represents the first time in three years that gains have broadened beyond these dominant companies. This broadening was evident on a recent trading day where 10 sectors were up, even as US technology experienced a decline, and the overall market remained flat. Dietrich views this “rotation” – the movement of capital into sectors like Industrials, Financials, Materials, and even Healthcare – as a positive sign and a hallmark of a healthy bull market.

Bull Market Duration & Historical Context

Dietrich argues that bull markets typically last longer than many investors anticipate. The current bull market, as of October 2025, is in its third year, with the third year often being choppy. However, the fourth year is typically strong. Historically, the average length of a bull market in the S&P 500 over the past 50 years (across five bull market cycles) has been eight years, with the shortest lasting five years. He also notes that many global markets, like the German DAX, are only now breaking out to levels last seen in 2007, suggesting these bull markets may be in their early innings.

AI Disappointment & Expected Volatility

Dietrich acknowledges potential disappointments in the AI sector, citing concerns about debt loads at companies like Oracle and OpenAI. He anticipates a peak-to-trough correction of 10-15% in the S&P 500 during 2026, consistent with the average correction of 14% seen since 1980. Carson Group’s target for S&P 500 gains in 2026 is between 12 and 15%. Despite this expected volatility, the firm is maintaining an even weighting in technology, believing other sectors will outperform. Specifically, they favor cyclicals (Industrials, Financials, Energy, Materials) over defensive sectors.

Sector Preferences & Underweights

Currently, Carson Group is underweight in small-cap stocks, despite their recent positive start to the year, citing past “fits and starts.” They manage approximately $7 billion in assets and maintain some small-cap exposure, but prefer large-cap stocks. They also favor cyclicals over defensive sectors like staples and certain areas of healthcare, although they note improving conditions in biotech.

Political Considerations: Midterm Elections

Addressing the potential impact of the 2026 midterm elections, Dietrich notes that midterm years historically tend to be rough for the US markets, with the last two (2018 and 2022) experiencing bear markets. He suggests the Republicans may lose control of the House of Representatives, potentially retaining the Senate. However, he points out that the US has experienced 13 years of a split Congress, during which the S&P 500 has generally performed well. He references the adage that “gridlock is good” for markets, suggesting a divided government could be a positive outcome. He cautions that midterm years can be volatile and unpredictable.

Notable Quote

“The lifeblood of a bull market, Andrew, we've always said is rotation.” – Ryan Dietrich, emphasizing the importance of broad market participation.

Technical Terms

• Capex (Capital Expenditure): Funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, and equipment.
• Cyclicals: Industries whose performance is closely tied to the economic cycle.
• High Beta: A measure of a stock's volatility in relation to the overall market. Stocks with high beta tend to be more volatile.
• Defensives: Industries that are relatively unaffected by economic cycles, such as consumer staples and utilities.
• Gridlock: A political situation where no single party has sufficient control to enact its agenda.

Logical Connections

The discussion flows logically from a broad bullish outlook to a more nuanced analysis of market drivers. Dietrich first establishes the global nature of the bull market, then addresses concerns about the concentration of gains in a few tech stocks. He then provides historical context on bull market duration and anticipates potential volatility, outlining sector preferences based on this outlook. Finally, he considers the potential impact of political events, tying it back to the historical performance of markets during midterm election years.

Synthesis/Conclusion

Ryan Dietrich presents a cautiously optimistic outlook for 2026, emphasizing a global bull market driven by monetary and fiscal policy, as well as AI spending. He highlights the broadening of market participation beyond the “Mag 7” stocks and anticipates a 10-15% correction within the year. His firm favors cyclicals over defensive sectors and large-cap stocks over small-cap stocks. While acknowledging potential risks, including AI disappointments and political uncertainty, Dietrich believes the overall environment remains favorable for continued market gains, particularly given the historical length of bull markets. The key takeaway is that investors should prepare for volatility but remain optimistic about the long-term outlook.