December 7, 2025

QuickTakes

MARKET CALL: Rebalancing Domestic

& Global Stock Portfolios In 2026

It no longer makes much sense for us to continue recommending overweighting the Information Technology and Communication Services sectors in an S&P 500 portfolio, as we have since 2010. The same can be said about overweighting the United States in the All Country World (ACW) MSCI portfolio, as we have been since 2010 as well. Consider the following:

(1) Rebalancing S&P 500 portfolio. The problem is that the first recommendation has worked so well that the two S&P 500 sectors now account for a record 45.2% of the index's total market capitalization (chart).

Overweighting these two sectors combined has been justified by their forward earnings share soaring to a record 38.6% of the S&P 500's forward earnings. However, the riskiness of an S&P 500 portfolio has increased along with its concentration in the two sectors.

So we now recommend market-weighting the two sectors combined and rebalancing by adding to our overweights in the S&P 500 Financials (currently with 13.0% and 18.4% shares of market cap and earnings) and the Industrials (8.0% and 7.7%) sectors.

Now, we would also overweight Health Care (9.9% and 11.9%), which both managed and passive investment portfolios mostly have underweighted (chart).

In effect, we are recommending underweighting the Magnificent-7 and overweighting the Impressive-493 in an S&P 500 portfolio. The former has outperformed the latter since the start of the pandemic because the earnings of the former have outpaced the earnings of the latter (chart).

We see more competitors coming for the juicy profit margins of the Magnificent-7 (chart). We also expect that the productivity and the profit margins of the Impressive-493 will be boosted by the technologies available to do so, which are sold by the Magnificent-7 and other technology companies (chart). In effect, our spin is that every company is evolving into a technology company.

(2) Rebalancing the MSCI World portfolio. On a global basis, the US MSCI stock price index now accounts for a near-record 65.1% of the ACW MSCI index (chart). We've been recommending a Stay Home investment strategy since 2010. In 2025, we started to acknowledge that Go Global was beating the US.

On a ytd basis, the US MSCI (up 16.8%) has underperformed the ACW ex-US MSCI (up 19.7% in local currencies) so far this year (chart). That's not a big margin of victory for Go Global. However, several countries have beat the US MSCI by a much bigger margin so far this year. In addition, the weak dollar has further boosted the returns of foreign stock markets denominated in dollars.

Foreign stocks remain cheap relative to US stocks on a forward P/E basis (chart).

The forward earnings of the ACW ex-US has been showing remarkable strength recently (chart). The resilience of corporate earnings worldwide has been remarkable, despite the geopolitical crises this year and tariff frictions between the US and its trading partners.

It's a big world with many countries having large populations that aspire to a better standard of living. Globalization isn't dead. Instead of being driven by producers seeking cheap labor and more markets, it is being driven by consumers seeking prosperity as well as by the race for technological advancements around the world.

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