In his August 17, 2026 commentary for Fidelity Investments Canada1, Jurrien Timmer, Director of Global Macro at Fidelity, sets out a case that deserves close attention from advisors and investors navigating an equity landscape that is quietly, meaningfully changing shape. The thesis is straightforward but important: the market's foundation is widening, and that widening may be one of the most consequential shifts of this cycle.
A Different Kind of Outperformance
The signal that anchors Timmer's view is the simultaneous achievement of new highs in both the cap-weighted and equal-weighted S&P 500 indexes, with approximately 75% of constituent stocks in uptrends. For investors conditioned to a market dominated by a handful of mega-cap names, that combination carries real meaning.
Over the past three months, the equal-weighted S&P 500 has outperformed the Magnificent Seven by roughly 13 percentage points. Historically, that magnitude of relative outperformance has appeared during market declines, when Mag 7 weakness dragged on the headline index. What is different today is that the rest of the market has continued to advance in absolute terms. Timmer frames this not as a rotation driven by weakness at the top, but as genuine broadening from below.
When AI Wobbled, the Market Held
That thesis was stress-tested earlier this summer. From the previous all-time high in early June until the market reclaimed that level a few weeks ago, the S&P 500 declined just 2.5%. Over the same stretch, the Mag 7 fell 9% and the broader AI complex dropped roughly 15%. Timmer describes the period as a "benign broadening rather than a bullish one," highlighting the market's ability to remain stable even as the segment that had led it for two years came under meaningful pressure. The episode suggests the market's dependency on semiconductors for support is diminishing, even if the sector's trajectory still warrants close watching.
That watching matters because semiconductor earnings have tripled over the past year, a pace that is not expected to continue. Timmer argues investors should redirect their analytical attention from the question of peak earnings to the question of peak momentum, the point at which earnings continue to grow but at a decelerating rate. The distinction is critical: deceleration is not collapse, and market history suggests it can coincide with durable, if broader, advances.
Earnings Are Doing the Heavy Lifting
The valuation question is addressed with notable directness. The forward S&P 500 trades at roughly 20 times earnings, while the equal-weighted index sits at approximately 18 times. These are not distressed multiples, but they are not stretched ones either, particularly in an environment where not only are earnings estimates moving higher, but the rate of change in those estimates is also increasing. Timmer points to the late-1990s technology bubble as instructive context: during the final phase of that rally, valuation expansion drove prices higher as earnings growth slowed. Today, earnings growth has not yet begun to slow. The dynamics are fundamentally different, and Timmer notes that investors continue to scrutinize underlying fundamentals, making a repeat of that late-1990s experience appear less likely in his view.
Two Risks Worth Holding Clearly in Mind
Timmer is not complacent about what could disrupt this picture. He identifies two specific risks embedded in the AI ecosystem.
The first concerns hyperscaler capital expenditure. Amazon, Meta and Google are committing enormous sums to AI infrastructure. The risk is that these expenditures do not ultimately generate adequate returns. Timmer notes, based on Fidelity's research team discussions, that these companies possess well-established core businesses, which may make them more capable of absorbing shifts in AI spending plans than companies whose entire business model depends on a single line.
The second risk is more structural. A token expenditure index that Timmer follows has been falling sharply, indicating that AI developers are increasingly turning to lower-cost open-weight models rather than expensive frontier models from companies such as OpenAI and Anthropic. Lower costs can support wider adoption, but they may also put pressure on the pricing power of frontier model developers and, by extension, on the revenue models that underpin massive infrastructure spending. Meanwhile, roughly half a trillion dollars in hyperscaler bonds is expected to be issued this year, with additional issuance expected beyond that. A new financing structure that uses semiconductor chips as collateral for long-dated loans introduces a particular concern: chips depreciate over time, which could produce a mismatch between asset values and the financing structures built around them. Timmer is clear that none of these risks appears imminent, but he believes they are important considerations for investors as the AI buildout continues.
Diversification and Canada's Moment
One of the more consequential structural developments Timmer identifies is the shifting correlation between AI-related and non-AI-related stocks. That correlation has turned negative. On days when AI stocks decline, the rest of the market has frequently risen in absolute terms. For investors managing concentration risk, that dynamic may be directly actionable.
Canada emerges as a specific opportunity within this context. Using a discounted cash flow framework, Timmer notes that Canada ranks among leading markets in terms of growth in shareholder payouts through dividends and buybacks, with a payout ratio near 90%. That compares favourably to large U.S. technology companies, where cash flows are increasingly directed toward capital expenditures. For a bull market entering its fifth year, broader participation may help extend the cycle's durability rather than abbreviate it.
Five Key Takeaways for Advisors and Investors
1. Market breadth has returned. With 75% of S&P 500 stocks in uptrends and both the cap-weighted and equal-weighted indexes at new highs, the market's foundation is broader and more resilient than it has been in years. Concentration risk in portfolios built around a small number of mega-caps deserves revisiting.
2. Peak momentum, not peak earnings, is the right question for semiconductors. Earnings growth in the sector has been extraordinary and will moderate. Advisors should help clients distinguish between deceleration and deterioration, two very different things with very different portfolio implications.
3. Valuation is not the concern. At 20 times forward earnings for the cap-weighted index and 18 times for the equal-weighted, the market is not pricing in perfection. Earnings growth, not multiple expansion, is doing the work.
4. The AI buildout carries embedded risks that are worth monitoring but are not yet critical. Hyperscaler capex returns, declining frontier model pricing power and chip-collateralized financing are legitimate concerns. Positioning in companies with diversified revenue streams reduces exposure to those risks.
5. Canada merits a fresh look. High payout ratios, strong shareholder return growth and a negative correlation with AI-exposed sectors make Canadian equities a meaningful diversifier at a time when broadening is both a theme and an opportunity.
Footnote:
1 Timmer, Jurrien. "A Bullish Broadening Beyond the Mag 7: Insights from Jurrien Timmer." Fidelity Investments Canada, 17 Aug. 2026, https://www.fidelity.ca/en/insights/articles/bullish-market-broadening-beyond-mag-7-jurrien-timmer-august-17-2026/
