Margie Patel Doesn't Expect the Stock Market to Broaden Out in 2026

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00:00Margie Patel of Allsprings Global Investments writing,

00:02we do not expect the stock market to broaden out materially in 2026.

00:06We think the strong sectors will continue to have high growth.

00:09Margie joins us now. And Margie, thank you so much for being with us.

00:13You really are answering the question that Matt was just asking,

00:16which is how much do you see this outperformance of the rest of the world,

00:20of the rest of the 493, really taking hold next year?

00:25Well, I think for the rest of the world,

00:26it's really sort of a catch up after a long period of underperformance.

00:30And I think that the U.S. still has some of the best fundamentals of any country in the world.

00:35And we have good momentum. Really, this year, we saw it in the third quarter.

00:39That should continue in the fourth and well into next year with the tax treatment,

00:44lower withholding, higher refunds, and the very favorable capital expenditure treatment in the new tax bill.

00:51So we think that the U.S. is going to be one of the better performing sectors next year in the world, really.

00:57And it does hinge, in your view, on AI remaining the dominant trade.

01:02How much is this on a currency-adjusted basis versus overall in absolute terms?

01:08Well, I think the artificial intelligence trade is going to continue.

01:12But really, over the last few months, we've already seen some erosion in the price-earnings ratios of some of the leading companies in AI.

01:19So the market is already making an adjustment if we're looking at some moderation from the extremely high growth,

01:26which is probably likely.

01:27But still, that says to me that's going to be one of the sectors that have well above average growth when you look at the whole economy.

01:33So we still think that's a great sector.

01:35What kind of broadening out do we get in earnings, Margie?

01:38Because we have seen the MAG-7 earnings, though still massive double-digit gains, slow down.

01:45And the rest of the S&P, as Lisa says, the S&P 493, starting to catch up to some extent.

01:52But it hasn't really been substantial.

01:54Does that change in 2026?

01:56No, I don't think so.

01:57I think the same sectors that have been strong for this year and a couple of years before are going to continue to be strong.

02:04The other sectors that I think particularly for consumers may be rather disappointing.

02:10So we still think it will be technology, industrials relating to the electrical grid.

02:15And those will be the sectors.

02:17And aerospace defense will continue to be the strong sectors.

02:20And really, I'll perform those other sectors.