Beyond the Mag 7: Where Markets May Be Looking Next: Insights from Jurrien Timmer - November 9, 2026

The AI correction started well before the election

A common view holds that the blue wave triggered last week's sudden drawdown. Jurrien argued the real story began on June 2, when many of the leading AI names reached their highs. In his view, the election acted as a catalyst, not the root cause. What has unfolded since is a five-month correction driven by investors questioning the financial model behind the AI boom. At the centre of the debate is how much capital will be needed to build out compute capacity, whether through debt or equity issuance. The upcoming Anthropic IPO, he noted, will be an important test. He also suggested that a blue wave could slow capital expenditures to some degree, with implications for earnings across parts of the market.

Why slower CapEx could favour the incumbents

Forward earnings expectations remain elevated, but the pace of growth appears to be moderating. The rate of change in forward earnings estimates looks to be peaking around 39%, while expectations for the next 12 months sit closer to 19%. That slowdown is not necessarily a problem, provided earnings growth remains positive. Jurrien described the repricing as healthy, noting the AI buildout had been moving at a pace that risked stretching either safety considerations or the financial system supporting it. The shift is evident in the Mag 7. These companies were once cash-generating businesses that returned substantial capital to shareholders through buybacks. The CapEx boom redirected much of that cash toward investments with uncertain returns. As a result, payout ratios fell from nearly 100% to 29%, contributing to a decline in trailing price-to-earnings ratios. Adjusted for that change, Jurrien suggested the Mag 7 could be trading at roughly twice the multiple they appear to. That dynamic creates what he sees as a potential silver lining. If data-centre expansion slows, incumbents with established franchises and diversified business lines could benefit. Amazon, for example, has significant businesses beyond building data centres. A moderation in CapEx could favour companies with broader revenue streams.

Rates re-enter the earnings conversation

For a long time, the answer to whether rates would get in the way of growth was simple: not yet. That may be starting to change. The 10-year Treasury yield climbed as high as 5.36% before retreating to 4.87%. At the same time, real yields moved above the economy's estimated long-term growth rate of roughly 2%. On its own, that may not be a concern. Combined with high levels of debt, however, it becomes a more important consideration. Jurrien noted that persistent increases in rates can raise questions around debt sustainability, not just in the United States but across highly indebted economies. At the same time, stocks and bonds have become less positively correlated and, in some periods, negatively correlated again, breathing new life into the traditional 60/40 portfolio. He expects that shift to be temporary. Over the longer term, a regime of higher inflation and higher rates has historically pushed stock-bond correlations back into positive territory.

History rhymes, but it doesn't repeat

The comparisons to the dot-com era are difficult to ignore. Jurrien indexed the Netscape IPO against the launch of ChatGPT and found that the April 2025 tariff tantrum low aligned closely with the Long-Term Capital Management low in 1998. On a five-year CAPE basis, valuations also appear similar to those seen in 2000. The purpose of these comparisons, he emphasized, is not to make a forecast. Rather, they help frame the discussion around what is similar and what is different this time. One important difference is where AI's market impact may be concentrated. In his view, leadership could be shifting away from the traditional picks-and-shovels trade, including semiconductors and memory, toward downstream beneficiaries and a potentially derated Mag 7. That shift matters because semiconductors remain cyclical. Jurrien noted that the sector operates within a roughly 40-month earnings cycle and is currently experiencing earnings growth of about 180% year over year. Calling the group purely secular, he cautioned, risks falling into the familiar trap of believing that this time is different.

A barbell outcome and a global broadening

The equal-weighted S&P 500 continues to show resilience. The index is near all-time highs, trades at roughly 16 times earnings and returns about 74% of earnings to investors through dividends and buybacks. Against that backdrop, Jurrien sees the potential for a barbell market outcome. One side could be led by an equal-weighted index driven by sectors such as financials, health care and energy. The other side could consist of the Mag 7 maintaining their position. The key is not necessarily that the largest companies move sharply higher. As long as they avoid significant declines, broader participation across the market could continue supporting overall performance. That broadening may not be limited to the United States. Canada and Japan rank among the strongest markets for payout growth. Canada, in particular, returns roughly 88% of earnings to investors and remains heavily weighted toward sectors Jurrien finds attractive, including financials and energy. Europe also remains on his radar. Despite the region's challenges, he continues to find value in European banks. Many offer yields in the 7% to 8% range and payout ratios near 90%. For Jurrien, the next phase of the market may place greater emphasis on income as a component of total return. Rather than relying on outsized price appreciation, investors may increasingly look toward businesses that can generate steady cash flow through dividends and buybacks across sectors and regions.

Solving for diversification with uncorrelated assets

Periods of market stress tend to expose a recurring challenge: correlations often converge when investors need diversification most. That dynamic was evident during last week's drawdown, when even assets not directly tied to AI moved lower. Jurrien suggested the move may have reflected margin calls and hedge fund de-grossing, creating a sense of déjà vu with the 2025 tariff tantrum. There is an important distinction, however. During the tariff tantrum, policymakers had a straightforward path to reversing the underlying issue. No comparable policy lever exists today. As a result, he said he expects the market to continue consolidating rather than experience a sharp downward correction. Within that environment, his investment clock has shifted from the market's "sweet spot" into the period after midnight. Earnings remain positive but are beginning to decelerate, while financial conditions are tightening through higher interest rates, a stronger U.S. dollar and widening credit spreads. For investors, that may increase the appeal of assets that move independently of traditional stocks and bonds. Jurrien highlighted alternatives, managed futures, equity long-short strategies, absolute-return approaches and short-term TIPS as examples. These assets may not deliver outsized returns, he noted, but their low correlation to both stocks and bonds can provide diversification when traditional asset relationships become less reliable.

Conclusion: a market in rebalance