We have written here previously about why we expected equity dispersion to define returns this year, a view reinforced by the divergent impact on risk assets of concerns around AI capex, business model obsolescence and the Middle East conflict.
That dispersion—the spread of individual stock returns—has now reached levels seen only in major crises or dislocations, precisely the environment in which skilled stock selection commands a premium and investors are rewarded for looking through near-term turbulence.
While fragile, the two-week ceasefire declared last week between the U.S. and Iran is a welcome development that markets rightly rallied on. But it doesn't change our view that dispersion will continue to define returns and create attractive opportunities, particularly in formerly out-of-favor segments like U.S. large-cap stocks.
Compelling Entry Points
Valuation was, for some time, the primary hindrance to a more constructive view on U.S. large caps. That has changed. Multiples across financials, technology and consumer discretionary, among other sectors, have come down meaningfully.
Notably, the ‘Magnificent 7’ mega-cap technology companies have seen their forward price-to-earnings compress from approximately 30x to 24x (between October 2025 and April 9), and, more broadly, many large caps that also looked expensive six months ago now offer compelling entry points.
The broader backdrop reinforces the case. The U.S. remains less energy-reliant than most developed economies, manufacturing is re-accelerating, and the labor market shows no meaningful signs of deterioration. Set against the risk of a European Central Bank policy misstep, lackluster U.K. growth, and Japan's significant energy exposure, the U.S. arguably looks like the best house on the block once again.
Importantly, we were constructive on the broadening-out theme before, and remain so now. The difference is that today we can extend that constructiveness to the broad market itself, with the valuation overhang that previously constrained our large-cap positioning having materially eased.
A Reset and Recalibration
The Middle East conflict has dominated headlines and weighed on sentiment, and it would be wrong to dismiss its continued influence on markets. But we think the conflict has also, somewhat counterintuitively, created an opportunity.
With investor attention focused on geopolitical developments, fundamental analysts and portfolio managers have simultaneously had a chance to step back from the noise and re-examine what happened in the first quarter with fresh eyes.
The SaaS sell-off, the concerns around AI hyperscaler spending, the questions around monetization and free cash flow generation—these were arriving in a relentless three-week span that left little time for considered analysis. Volatile as markets have been, that shift in focus has given investors a chance to reset, look again at where valuations have moved and identify where the real opportunities lie.
That is precisely the right discipline to bring into the second quarter. The important thrust of this moment is positioning—identifying entry points while the market remains in a state of uncertainty.
Fundamentals-Driven Differentiation
This is not a call for a return to the concentrated “7 vs. 493” dynamic that characterized so much of the prior bull run. What we expect is wider participation, with technology joining rather than dominating a broader advance across utilities, communication services and select hyperscalers.
Within technology, dispersion remains a defining feature. Investors are drawing meaningful distinctions, rewarding companies that hit their targets rather than simply buying the group. The indiscriminate selling that characterized the AI-related drawdown, where hyperscaler spending concerns hit the entire sector regardless of individual merit, is giving way to the fundamentals-driven differentiation.
Financials tell a similar story: the sector has re-rated, and genuine opportunities for selectivity across multiple sub-industries exist at current levels. Across the large-cap landscape, the opportunity lies not in buying the index, but in being deliberate about where the risk-reward is most compelling.
Large Cap Allure
In an environment where global investors are reassessing their geographic allocations and leaning back toward the U.S., the case for not leaning into U.S. large caps broadly—across technology, financials, communication services and beyond—looks increasingly difficult to justify.
Entry points are more attractive than they have been in some time, the macro backdrop supports quality, and the near-term overhang from capex guidance—already extensively flagged in fourth-quarter earnings commentary—has largely been absorbed. As first-quarter earnings season gets underway, the focus shifts from fear of what companies might say to a more grounded assessment of where growth is strongest and which businesses are generating durable free cash flow.
High cash allocations, suppressed positioning, historically elevated dispersion, and a valuation reset that has already done much of the heavy lifting—all of these point in the same direction.
What to Watch For
Monday 4/13:
- U.S. Existing Home Sales
Tuesday 4/14:
- U.S. Producer Price Index
Wednesday 4/15:
- China GDP
Thursday 4/16:
- U.K. GDP
- Eurozone Consumer Price Index
- U.S. Initial Jobless Claims
- U.S. Philadelphia Fed Manufacturing Index