Sean Simonds on 2026 Market Outlook: Tech, Industrials, and European Equities

Market Breadth and Tech's Role

• 💡 The market is expecting more breadth in 2026, moving beyond a solely tech-led rally, which could make achieving a 20% market gain more challenging.
• 🤖 A key theme for 2026 is high productivity, with companies integrating AI into operations for operational efficiency and quality improvement.
• 🎯 The focus is shifting towards industrials and materials rather than consumer cyclicals, with expectations of earnings breadth.

AI as a Market Driver

• ⚠️ A significant risk is that AI may not live up to its hype, which has been a primary driver of returns for the past three years.
• 📈 However, the speaker believes the market is closer to realizing the potential of AI, similar to the 'second coming of the internet,' with efficiencies flowing through to corporations.

Sector Performance and Earnings

• 📊 For 2026, materials and industrials are seen as attractive, with expected EBIT margin increases of 1.5% or more.
• 📉 Consumer spaces, while showing sales-driven earnings growth, have lower margin increase expectations (sub-60 basis points), making them harder to sustain.
• 📈 The S&P 500 is projected to see nearly 15% earnings growth, with tech and 'tech plus' sectors aligning with expectations of 20-21% growth.
• 🔍 While earnings revisions for the broader market have been flat to slightly positive, there's a lack of negative revisions, which is theoretically positive but not yet reflected in significant upward revisions.

International Equities and Investment Factors

• 🇪🇺 European equities, particularly financials and banks, are viewed positively and are expected to come back into the spotlight.
• 🔑 Key screening factors include monitoring margins and operational efficiencies like sales per employee.
• 📈 A rotation back into higher quality investments is anticipated, making it a preferred factor.
• 💰 The PEG factor (valuation for growth) is also important, especially as valuations are at extremes but supported by margin and earnings growth.