Jeremy Richardson, Senior Portfolio Manager, RBC Global Equity, RBC Global Asset Management (UK) Limited summarizes the market in 2025 for the asset class, and gives his thoughts for 2026.
2025 delivered strong returns for US equity investors, recovering from early volatility driven by tariff uncertainty and recession fears. Policymaker interventions and a dominant AI trade that shifted focus to "AI winners vs. AI losers”.
Market concentration persisted, with the top 10 largest companies contributing nearly 60% of returns, mirroring 2024’s dynamics.
The 2026 outlook anticipates continued leadership from information technology and communication services, fuelled by capital expenditure in these sectors, though this consensus may underappreciate the potential for broader economic expansion if stimulus measures target low-income consumers.
A shift toward addressing the K-shaped economy may be on the horizon, where previously wealthier cohorts thrived and others struggled, policy actions (e.g., tariff revenue redistribution) may foster wider market participation and increased alpha opportunities for active investors.
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Well, 2025 has been a very good year for equity investors in the United States. The market began in a rather choppy fashion with a lot of tariff uncertainty creating concerns of inflation, and possibility, even, of a US recession. Policymakers responded though, to that uncertainty, allowing the AI trade to make a strong recovery from late spring onwards. It's really been the AI trade which has been dominating market narratives for the rest of the year.
It's expressed itself slightly different to 2024 when the Magnificent Seven was the phrase that was on everybody's lips. This time around, the markets, instead focusing on AI winners versus AI losers. Loose aggregation, which is where the constituents have been changing depending upon their ability to be able to navigate their way through this very dynamic industry. It has led, though, to a very concentrated market once again that is similar to last year. And it's been notable that a small number of these large technology companies have once again dominated performance, nearly 60% of market returns just coming from the top 10 largest companies.
The outlook for 2026, according to consensus estimates at the moment, seems to be dominated by many of the same characteristics that pushed 2025 so far, with information technology and communication services dominating the forecast agenda, driven by capital expenditure into that particular industry. However, the market may not be reflecting the possibility of broadening out of the US economy if we do see stimulus checks and tax refunds being directed towards low income consumers.
Over the course of 2025, we have been thinking a lot about the so-called K-shaped economy, with those with money doing particularly well, but those without really struggling. Obviously that's going to be a challenge for policymakers facing midterm elections in November of next year. And if that does lead to policy actions, which are directing perhaps some of the tariff revenues to those more struggling households, then that could actually lead to quite an attractive broadening out of the economy. That could present positive opportunities for active investors because the more stocks that outperform, the more alpha there is available.
Featured speaker:
Jeremy Richardson, Senior Portfolio Manager, RBC Global Equity, RBC Global Asset Management (UK) Limited