The Pendulum Swings Back

 

“The wheel is come full circle.” — William Shakespeare, King Lear

 

August has a way of pretending nothing is about to change. The evenings are still warm, the calendar is still forgiving, and there is no particular reason to think about what comes next. Then one morning you reach for a jacket you have not needed since May, and the season has turned without asking anyone’s permission.

 

Markets do the same thing. The question is never whether conditions change. It is whether you built something that holds up when they do.

 

What Changed This Year

 

For most of the past decade, and with real intensity over the last three years, a small group of very large American technology companies carried the market. Capital became concentrated. Valuations expanded. Their weight in the S&P 500 kept rising. Investors who owned the index in its purest form were rewarded handsomely for a portfolio that had become, by any reasonable measure, steadily less diversified.

 

That trade has cooled in 2026. Money has rotated from mega-cap technology names into small and mid-caps. The valuation gap between large and small companies had reached levels not seen in decades, and gaps that wide eventually close. We have also seen a move from growth into value, into companies with earnings you can count and balance sheets you can read with a sense of comfort.

 

We do not claim to have predicted the timing. Nobody does. What we do instead is build portfolios that do not depend on the timing.

 

The Index Is Not a Portfolio

 

Clients sometimes ask why their account does not track the headline benchmark. The honest answer is that the index was never built to be a portfolio in its own right — though it can still play a useful part in one.

 

Consider what the S&P 500 actually is. It is a list of companies ranked by size, and it holds more of whatever has already gone up. By itself, it has no valuation discipline — nothing that asks whether a price is sensible — no risk management to trim a position when it grows too dominant, and no answer for what happens if the theme that drove the last five years stops working. As a complete portfolio, it would give a thoughtful investment committee real pause. But that same design has a useful side: by holding more of the biggest and fastest-growing companies, the index owns the market’s leaders at full weight. Used deliberately and in measured size, it makes a sound complement to active management — broad exposure to the winners on the passive side, valuation discipline and risk control on the active side.

 

By late last year the ten largest companies in the S&P 500 represented more than a third of its value. This is not only an American problem. The Canadian market has its own version, dominated by financials and energy, and most investors here own the Big Six banks directly and again inside every Canadian equity fund they hold. Those banks are currently earning at or near record returns on equity, and it is worth being clear about where those earnings come from: unusually strong capital markets activity and unusually low credit losses, both of which are cyclical and both of which revert. Excellent results are not the same as a permanent baseline. Overconcentration is a risk to be managed whichever flag it flies under.

 

We have a value bias. We care what we pay for a business, which in practice means a price that is a sensible multiple of what it earns. Companies bought on that basis also tend to pay dividends, which is worth something while you wait. Growth does matter — we own growth and intend to keep owning it — but growth at any price stops being an investment and becomes a wager. When an index is doing the work of a momentum strategy, the cost of prudence is that you look slow. The benefit arrives later, and only shows up if you measure over a long enough period.

 

This Has Happened Before

 

Style leadership swings, and it swings on a longer cycle than most investors have patience for.

 

In the early 1970s, the “Nifty Fifty” were considered one-decision stocks you could buy and never sell. By 1974 many had lost more than half their value, and the value discipline that had looked hopelessly old-fashioned led for the rest of the decade.

 

The late 1990s repeated the pattern with more drama. Growth beat value by an enormous margin into early 2000. Investors who kept buying earnings and assets were told they had missed the point of the new economy. Over the six years that followed, value outperformed growth by a wide margin, and a great many of the new-economy names never recovered at all.

 

Growth then led for most of the period from 2009 through 2021, reversed sharply in 2022, and reasserted itself through the artificial intelligence cycle of 2023 to 2025.

 

The lesson is not that value always wins. It does not. The lesson is that leadership rotates on a schedule nobody publishes in advance, and that the years when one style looks permanently superior are usually the years the case for balance is strongest and least popular.

 

What We Actually Do About It

 

We are not making a call that technology is finished, or that the banks are. We own both. What we do is size positions so that no single theme determines your outcome, and let valuation discipline decide when we add and when we trim. When enthusiasm pushes a price past what the underlying business can support, we trim. When good businesses are unloved and cheap, we buy.

 

Warren Buffett’s advice to be fearful when others are greedy and greedy when others are fearful is easy to quote and hard to follow, because it requires acting against a prevailing mood that is, at the time, genuinely persuasive. The reward is not that you win every year. It is that the years you lose are survivable, and that you are still fully invested when the wheel comes round.

 

A Conversation Worth Having

 

This rotation is worth discussing at your next portfolio review. And as always, if there have been changes in your circumstances this year — a retirement, a business sale, a new job, a property transaction, a change in the income you need from the portfolio — keeping us aware helps ensure our advice remains aligned with your needs and objectives.

 

Good planning starts with a conversation. We look forward to ours.

 

Warmest regards,

 

Moore-Miller Investment Group