Market leadership and concentration risk: Insights from Jurrien Timmer - December 22, 2025
Fidelity’s Director of Global Macro, Jurrien Timmer, shared his insights on market leadership, concentration risk, global diversification and portfolio positioning as we prepare for 2026.
Here are some of the key points from his commentary.
Market leadership and concentration risk: Navigating the dominance of the MAG‑7
Jurrien highlighted how recent market performance has been heavily driven by the MAG‑7. He noted that the S&P 500’s cap‑weighted index gained about 18% this year, compared with 11% for the equal‑weighted index, underscoring how significantly the leaders amplified returns. Despite concerns that the AI‑driven rally could turn into a bubble, Jurrien expressed increasing confidence that it is not a bubble, pointing to high levels of scrutiny around earnings quality, vendor financing and depreciation schedules.
Looking to 2026, Jurrien raised a key question: if leadership rotates away from the MAG‑7 toward the rest of the market, can the market broaden without the index falling? While the answer is uncertain, he emphasized that the rest of the S&P 500 are seeing improving fundamentals, particularly through accelerating earnings estimates.
Global market breadth and diversification: Broadening beyond U.S. tech leaders
Jurrien stressed the importance of diversifying beyond the handful of U.S. tech giants that dominate today’s index. Tech and telecom together now make up roughly 43% of the S&P 500, a level of concentration similar to early 2000. This does not imply a repeat of the dot‑com era, but it does highlight how much leadership is concentrated.
He noted that you don’t need to choose between growth and value or between U.S. and international equities. His preferred framework is an international “barbell” approach: pairing U.S. exposure with developed‑market and emerging‑market equities. This helps reduce reliance on the MAG‑7 while allowing you to participate in improving fundamentals elsewhere.
Equity premiums and emerging markets: Understanding global opportunities
Jurrien highlighted meaningful improvements in developed markets outside the U.S. Companies in Europe and Japan have become increasingly shareholder‑focused (shrinking their share float through buybacks, paying more dividends and raising combined payout ratios to roughly 75% of earnings, comparable to U.S. levels). Given valuations that are materially lower than those in the U.S., he sees a more level global playing field.
Emerging markets (EM) also offer attractive prospects. He described EM as offering secular growth potential, though with more fragmentation across regions.
Correlations and portfolio diversification: Moving beyond the traditional 60/40
Using correlation work across equities, bonds and alternatives, Jurrien explained that asset classes cluster into three buckets: bonds, equities and diversifiers such as gold, Bitcoin, liquid alternatives, commodities and cash. He noted that emerging markets show lower correlation to the S&P 500 and to long bonds, offering diversification benefits.
Given the evolving relationship between stocks and bonds, he reiterated his long‑standing view that you may want to move beyond the traditional 60/40 portfolio. Instead, he favors a “60‑20‑20” structure: 60% equities, 20% bonds and 20% in alternatives. This approach can help protect portfolios from both equity concentration risk and potential pressure on bonds.
Interest rates and portfolio positioning: Responding to Fed policy and yield‑curve dynamics
Jurrien described the bond market and the U.S. dollar as “eerily quiet,” even with 10‑year Treasury yields around 4.1%–4.2%. He noted that despite concerns about debt sustainability, the market appears comfortable for now. He discussed the possibility of the Federal Reserve becoming more dovish and the potential for a bear steepening of the yield curve, especially if policymakers pursue bank deregulation or incentives that echo elements of the 1940s playbook.
In that environment, Jurrien favors maintaining some exposure to bonds but not overweighting them. Alternatives, including gold, Bitcoin, commodities and cash, play an important role in managing both equity and fixed‑income risks, especially if the yield curve steepens.
Conclusion: Prepare for 2026 with diversification and flexibility
Jurrien’s outlook underscores the importance of balancing growth opportunities with risk management. While concentrated leadership has powered strong returns, it also creates vulnerabilities. Meanwhile, earnings improvements across the broader U.S. market, compelling shareholder actions in developed markets and higher growth potential in emerging markets all offer diversification opportunities. Incorporating alternatives and adapting beyond the traditional 60/40 framework can help strengthen portfolios for a year that may bring leadership rotation, global broadening and continued market uncertainty.
