Monthly Strategy Update

How narrow?

At one point last year, with the major indexes up double digits, just 18% of S&P 500 stocks were beating the index. More of its stocks were down at least 20% than were beating it.

Over three years, the S&P 500’s 34% cumulative outperformance of the equal-weight index is the widest on record. The prior record was 32%, set in 1997–1999. What followed: the equal-weight index beat the cap-weight index seven years in a row.

That’s not to say the portfolios performed poorly. Most Private Client portfolios had double-digit gains in both 2024 and 2025 — and all our model portfolios sit at all-time highs.

In mid-November, Google released Gemini 3. New models arrive regularly, so that alone wasn’t news. What mattered was the hardware: Google took the AI lead with a model trained on its own chips rather than Nvidia’s. Two weeks later, Amazon launched an in-house chip of its own.

Until then, the tech giants stayed in their own sandboxes. Nvidia made the chips; everyone else competed on models built with them. Google had search, Amazon e-commerce and cloud, Apple hardware, Microsoft software, Meta social, Tesla vehicles. They largely didn’t compete head-on.

That’s over. Companies in Nvidia’s ecosystem started falling while those aligned with Google soared. The AI trade splintered, and the monolithic Magnificent Seven trade cooled fast. From November 1 to January 6, those seven stocks fell 2.0% while the rest of the market accelerated higher.

At its December meeting the Fed cut rates another quarter point — expected. It also announced $40 billion a month in Treasury bill purchases — not expected.

Some context. The Fed began quantitative easing in 2008, buying Treasury bonds to push long-term rates down and stimulate the economy. Over roughly 14 years of QE in various forms, its balance sheet grew nearly tenfold, from under $1 trillion to almost $9 trillion. Critics argue it did little for growth; nearly everyone agrees it lifted asset prices.

In June 2022 the Fed reversed course with quantitative tightening, letting bonds mature without reinvesting. That brought the balance sheet from $9 trillion to $6.5 trillion before QT ended on December 1, 2025.

Purists will debate whether T-bill buying is “real” QE. The bottom line: nine days after it stopped selling government debt, the Fed announced it would start buying again. There’s a well-established 16-year correlation between Fed purchases of government debt and rising asset prices. We’ve heard “but it’s not QE” before, and the net effect has always been stimulative.

Fed policy is hardly the only thing that matters. But a new rate-cutting cycle generally helps the broad economy — and the broad economy is what drives the stocks that sat out this bull market.

Since November 1 the market dynamic has shifted noticeably. The AI trade reversed while the broader universe of stocks kicked into gear. The equal-weight S&P 500 is up 5.3%; the standard S&P 500 is up 1.8%; the tech-heavy Nasdaq is down 0.6%.

Our models are confirming it. The index-switching sleeve added to Stock Upgrading last year pivoted from large-growth to large-value at the end of December — and value has led growth 6.4% to negative 1.9% since November. FCTE, which buys quality stocks pulling back within an uptrend, has gained 4.6% over the same span.

With more stocks participating, foreign markets, commodities and precious metals all humming, and investors finally looking past the AI narrative, this feels like home-field advantage. That advantage can be substantial. The last sustained stretch like it was 2000–2009, when the S&P 500 posted a negative total return for the decade — and Stock Upgrading gained 85%.

Strategy review