Broadening delivered now prepare for volatility

Broadening Delivered. Now Prepare for Volatility.

Chris Galipeau Head Market Strategist Franklin Templeton Institute

Executive Summary Our broadening thesis did not begin in 2026—it began more than 18 months ago.

Lukasz Kalwak, CFA In January 2025, we published “Get ready for a broader US equity market,” arguing that the Market Strategist extraordinary concentration in US mega-cap technology stocks was unlikely to persist indefi- Franklin Templeton Institute nitely. While the Magnificent Seven 1 had become the dominant driver of market returns, we believed improving fundamentals across a much broader set of companies, sectors and regions would eventually support a healthier and more diversified bull market.

One year later, in January 2026, we expanded on that framework in “Broadening momentum: From US technology leadership to US small-caps and emerging markets,” moving from the broad idea of improving market breadth to identifying where we believed leadership would emerge: US small-caps, equal-weighted equities and emerging markets.

The past 18 months have largely validated that view. Rather than continuing to rely on an increas- ingly narrow group of mega-cap technology stocks, investors have been rewarded across a much wider opportunity set. Leadership has broadened across market capitalizations, invest- ment styles and global equity markets, with the MSCI Emerging Markets (EM) Index returning 62%, Russell 1000 Value Index 40% and Russell 2000 Value 39%, all comfortably outperforming the Magnificent Seven (25%) over the same period.

Today, however, investors face a different challenge. The broadening bull market remains intact, but after a powerful recovery from the March lows, markets are entering a more demanding phase. Earnings continue to provide strong support, yet liquidity2 is becoming less accommoda- tive, market leadership is becoming increasingly selective and volatility is likely to increase.

1. Magnificent Seven refers to shares of Apple, Microsoft, Amazon, Alphabet, Meta Platforms, Nvidia, and Tesla. 2. Global liquidity is proxied by the aggregate monetary policy stance of major central banks, measured as the number of central banks easing versus tightening monetary policy.

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Our message therefore evolves—but does not change. Stay invested. Stay diversified. Be prepared.

The Broadening We Expected Has Arrived At the end of 2024 and 2025, we argued in our papers referenced above that a broadening of leadership away from the Magnificent Seven would characterize the next phase of the bull market. Rather than expecting mega-cap technology to continue carrying the market indefinitely, we highlighted improving opportunities in US small-caps, equal-weighted equities, value and emerging markets. Earnings power was broadening and we believe that stocks ultimately follow earnings growth. That is precisely how past 18 months have unfolded.

Exhibit 1: Earnings- % of Stocks with Positive EPS Growth %, Y/Y Growth Per-Share Growth Has 100 80 Broadened 60 Fourth-Quarter 2000 to 80 Fourth-Quarter 2028E 40 60 20

% of Stocks with Positive EPS Growth (LHS) S&P 500 EPS Growth (RHS) Sources: FactSet, S&P and Dow Jones Indices, FactSet Market Aggregates; analysis by Franklin Templeton Institute. From Q4-2000 to Q4-2028 E=estimated. Updated as of July 31, 2026. There is no assurance that any estimate, forecast or projection will be realized. Note: Right Y-axis scale is truncated. Important data provider notices and terms are available at

Over the past 18 months, the Magnificent Seven returned approximately 25%, compared with roughly 34% for the Russell 2000, 62% for emerging markets and 40% for the Russell 1000 Value index. Rather than collapsing under the weight of weaker mega-cap performance, the market found new leadership.

Exhibit 2: Market Price Returns, % Broadening Trend– 90 81.0% 80 Global Index 70 Performance 61.5% 60 50.4% 46.6% December 31, 2024 to 50 39.8% 38.7% July 31, % 30.0% 29.8% 29.0% 30 26.2% 25.3% 24.4% 23.1% 21.8% 18.9% % MSCI MSCI MSCI MSCI Russell Russell Russell Russell S&P Russell S&P Mag 7 S&P S&P S&P Russell MSCI LATAM EM Europe Japan Mid Mid Mid 1000 India Value Value…