Small and Mid-Caps Are Re-Entering the Conversation
Beyond Big Tech: The Global Surge in AI Adoption and Implications for Investors
Key Takeaways ETFs are no longer just passive, low-cost vehicles. Active management, leverage, and complex strategies now define a significant and growing portion of the ETF universe. Choice and innovation come with tradeoffs. While product variety has increased, so have fees and structural complexity—raising the stakes for fund selection. Advisor due diligence is more critical than ever. In an ETF landscape with growing complexity, maintaining portfolio discipline and aligning exposures with client objectives requires deep and consistent analysis. The ETF Market is Structurally Shifting For years, investing in an exchange-traded fund (ETF) meant investing passively in an index. ETF investors bought portfolios designed to capture the returns of an index, like the widely followed S&P 500, by matching the holdings of the index. This approached allowed portfolios to replicate the performance of the index, but gave up the prospect of outperformance. This is in contrast to active management, which attempts to outperform an index. That convention reflected reality: regulatory and structural constraints made it difficult (often impractical) to deliver active management within an ETF wrapper. As a result, mutual funds remained the primary vehicle for active strategies. That paradigm shifted in 2019, when updated rules opened the door for active management in ETFs. Asset managers moved quickly to capitalize, and the market responded. With more than 5,000 ETFs now trading, surpassing the total number of publicly listed stocks, the investment landscape has become far more crowded than it was a decade ago. New product launches and asset flows reveal that ETFs have become the investment vehicle of choice, reflecting their success in lowering costs, improving tax efficiency, and broadening access to markets.
After years of record-breaking investment from the hyperscalers, 2026 may finally bring a shift. New incentives stemming from the implementation of the One Big Beautiful Bill Act (OBBBA) could push companies outside of technology into the much-needed CapEx boom. In this episode of Money with Murphy, Kara explores why the broadening out of business investment is critical for sustained productivity, earnings growth, and stock market performance.
Key Takeaways The S&P 500 posted its third consecutive year of double-digit gains, although its 17% gain for 2025 was short of the 20% gain in the previous two years International markets returned to prominence, with emerging markets like South Korea, Mexico, and Brazil along with developed markets in the United Kingdom and Japan outperforming the US A variety of policies will drive market performance in 2026, including the Federal Reserve’s monetary policy and tariffs The bull market run remained resilient for a third consecutive year. Despite significant external shocks stemming from tariffs, geopolitical uncertainty, and growing concerns about the sustainability of capital expenditures for AI, investors who stayed the course were rewarded. In a volatile start to the year, the S&P 500 plummeted 19% in the first quarter only to finish the year up by nearly 17%. It’s only the fourth time since 1926 that the benchmark index has returned greater than 15% in three consecutive years. A growing economy and enthusiasm about the possibilities of AI more than compensated for significant headwinds. While the market’s momentum is backed by strong fundamentals of double-digit earnings growth for a second consecutive year, valuations have become stretched to levels not seen since the dot-com bubble. In addition, 2025 marked the year when international markets took leadership as the MSCI Emerging Markets index posted a 33% gain, highlighted by outstanding years in South Korea, Brazil, and Mexico. Developed markets excluding the United States also performed well, with the United Kingdom and Japan posting returns of 33% and 25%, respectively. With another excellent year of market returns behind us, it’s worth asking if the bull market can reach a fourth year? If so, where do we need to direct our attention? In this week’s Markets in a Minute, we unpack where potential opportunities may lie. A Broadening Out of the Rally? The 3-year bull market has been heavily driven by artificial intelligence broadly, and the Magnificent Seven specifically. However, in 2025, only two stocks in the esteemed Mag 7 group (Alphabet, Nvidia) outperformed the S&P 500. While Communications Services and Information Technology remained the top performing sectors, strength in Industrials, Utilities, and Financials indicate there are promising returns elsewhere. All 11 sectors of the S&P 500 posted a gain in 2025, and forward earnings for the coming year are encouraging. For instance, the Materials sector is expected to grow earnings by 23% and Industrials by 15%.
In 2025, financial markets were tested but responded with resilience, posting a third consecutive year of double-digit gains. All 11 sectors of the S&P 500 saw gains but only two stocks in the Magnificent Seven beat the index’s 17% return. Earnings growth kept up pace proving the market’s momentum was backed by strong fundamentals. As we look at 2026, we will be monitoring continued political uncertainty, heightened valuations, and the sustainability of AI-related capital expenditures. In this week’s Money with Murphy, Kara walks through the highlights of 2025 and what to watch for in the months ahead.
Markets covered a lot of ground in 2025 but remained resilient. Tariff announcements in the first quarter of the year led to a significant drawdown and volatility across the globe. Yet, markets immediately bounced back to reach record highs with strong earnings growth fueled by AI-driven technology companies. Kara’s year in review covers the year’s biggest stories.
I talk to many investors around the country and the most common question I’ve been getting the last few months has been: are we in an artificial intelligence (AI) bubble? While we believe we are still in the early days of the AI buildout, the best way to cushion your portfolio from a potentially rocky road ahead is to own asset classes that behave differently from each other. One such differentiated asset class is emerging markets, potentially one of the most underrated storylines in the market this year. So far in 2025, the MSCI Emerging Markets Index has returned more than 25%, nearly 10% higher than the S&P 500. This strength comes after over a decade of trailing the U.S. stock market. What’s driving this reversal in emerging market stocks and is it sustainable?
November 18, 2025 Kara Murphy, CFA Resilience in the Face of Tariffs In April, the new Trump administration announced an extensive set of tariffs. In response to the sharp shift away from nearly 100 years of lower barriers to trade, stocks plummeted. In a five-day period from April 2 to April 8, the S&P 500 fell by more than 11%, extending losses that had started months earlier. As the S&P 500 neared bear market territory, the administration paused a large share of the tariffs for 90 days. The pause prompted a rally in stocks even more virulent than the recent decline. The market has returned about 15% so far this year, which follows two consecutive years with returns over 20%.
“When you see one cockroach, there’s probably more,” said JPMorgan CEO Jamie Dimon in an Oct. 14 comment referring to cracks he’s seeing in the banking sector. The, now, infamous cockroach quote sparked important debate about the $1.6 trillion private credit market, which has grown 300% over the past decade while delivering strong risk-adjusted returns. Understanding both the opportunities and risks of this evolving asset class is essential for investors looking to tap into one of the market’s most compelling areas of growth.
The end of the year offers a chance not only for personal reflection but also for thoughtful tax planning. As portfolios shift with another strong market, investors are well served to consider if their portfolio is still on track—both from a risk and tax standpoint. Let’s consider a few key scenarios that can be tackled heading into year end. Another Year, Another Stock That Did Better Than We Expected Each year, a few standout stocks capture attention with spectacular returns—think names like Palantir, Oracle, Netflix, GE Aerospace, Uber, Johnson & Johnson, and Intel have outpaced the market this year. Holding one can feel like hitting the jackpot, but big winners often bring a hidden cost: concentration risk. When one position grows too large, it can expose investors to outsized drawdowns and throw a portfolio off balance. After such strong gains, it may be time to rebalance—locking in success while keeping long-term goals on track and the right amount of risk in a portfolio. Capital Gains Distributions and Mutual Fund Outflows Mutual funds have many strengths, but tax efficiency isn’t one of them. They can distribute capital gains even when shareholders haven’t sold any shares, creating “phantom gains” and unexpected tax bills. A major driver of these gains is investor redemptions—when outflows force funds to sell holdings. Eight of the last ten years have seen net outflows from mutual funds in aggregate, and 2025 appears to be following suit. While not every fund with outflows will make distributions, the risk rises as redemptions increase. If your mutual funds are seeing outflows, it may be wise to rebalance toward more tax-efficient options like ETFs before your mutual fund pays out capital gains.
Key Takeaways The broad U.S. stock market climbed to new highs fueled by strong corporate earnings, especially among technology companies. Broad-based gains pushed all S&P 500 sectors into positive territory for the year-to-date period. The bond market rallied as well, buoyed by a dip in interest rates across maturities. The U.S. economy continued to show resilience despite lingering inflation and trade uncertainty. While the job market is weakening, unemployment remains low by historical standards. For much of this year, uncertainty around trade, fiscal and monetary policy ran high. In the third quarter, however, investors got answers to some key policy questions with the passage of President Trump’s One Big Beautiful Bill Act and the Federal Reserve’s resumption of the rate-cutting cycle it paused nearly a year ago. They also got welcome news on corporate earnings, which helped ease (but not erase) worries about the impact of historically high tariffs. The S&P 500 index posted strong earnings growth , beating analysts’ expectations by a healthy margin. The index marked its nineth consecutive quarter of positive earnings. Earnings growth, greater policy clarity and other tailwinds drove U.S. stocks to new highs. The third quarter marked the first quarter this year the U.S. stock market outperformed international equities markets, which have been buoyed by a sharp decline in the value of the dollar. Read on for a closer look at third-quarter trends and our take on the near-term outlook.
