Why US Equity Returns Are Broadening Beyond AI Stocks

The market is experiencing a significant broadening as strong Q2 earnings—with 64% of companies beating estimates by over one standard deviation—drive growth beyond the concentrated "Magnificent Seven" trade. This shift reflects a rotation into under-owned sectors like software and healthcare, supported by a 2% lift in 2027 consensus EPS projections. While AI-related volatility persists, investors are demonstrating increased discernment, favoring specific subcomponents like memory over blind allocation. Macroeconomic pressures, including rising oil prices and back-end bond yields, continue to influence sentiment, prompting investors to utilize ETFs for hedging against geopolitical and Fed-related uncertainty. Meanwhile, the consumer experiences sector, encompassing live sports and entertainment, emerges as a compelling, undervalued theme that remains largely insulated from AI-driven disruption. Shawn Tuteja, who oversees ETF and custom baskets vol trading at Goldman Sachs, identifies these trends as the market navigates a transition toward more sustainable, fundamental-driven growth.