Market Leadership Is Shifting—a Broader Rally May Be Coming

After years when market gains were driven by a handful of technology giants, global stock markets are beginning to show signs of change.

Just two months into the year, the more traditional parts of the economy—the businesses focused on making, moving and manufacturing products rather than developing artificial intelligence (AI)—are showing new strength. That shift is clearly visible in market results. Small- and mid-sized U.S. companies, especially those considered “value” stocks, have been among the strongest performers so far in 2026. At the same time, international stocks tied to manufacturing and industrial activity are also gaining ground.

This rebound suggests that economic activity beyond the AI boom is improving enough to support higher company profits. Renewed strength in manufacturing and industrial activity will likely help drive earnings through the rest of this year and into 2027 barring a prolonged conflict with Iran. An extended conflict could constrain global energy supply through the Straits of Hormuz with the potential to send oil and natural gas prices materially higher from pre-war levels. However, AMG has not changed its base case economic scenario to one in which an energy shock disrupts the U.S. and global economy, and continues to think an industrial and manufacturing reacceleration is underway.

Meanwhile, stocks tied directly to AI, which have powered growth indexes and the S&P 500 in recent years, have gotten off to a slower start in 2026. That ebb comes even as the largest technology companies—Alphabet, Meta, Microsoft, Amazon, and Oracle—continue to invest heavily in AI infrastructure. Their spending plans remain aggressive, with investment expected to grow by more than 50% this year compared with last.

In 2025, that wave of spending benefited companies that supply the tools behind AI, such as chipmakers and certain financial firms. This year, however, investors are becoming more cautious. Questions are growing about whether the massive spending on AI will quickly lead to higher sales and profits. Those concerns have put pressure on parts of the AI supply chain. At the same time, investors are starting to think more carefully about how AI could disrupt other industries. Sectors such as software, insurance, banking and logistics have already felt some strain as business models are reassessed.

Bottom line: Despite these mixed signals, the overall outlook for stocks remains positive. Smaller companies, mid-sized firms, and international markets tied to traditional economic activity are benefiting from improving conditions and are often less exposed to near-term AI uncertainty into the year ahead.