5 Long-Term Themes You Need to Understand For 2026 | The Weekly Wrap

Hi, Steve Eisman here. On my weekly wrap, I try to both teach and convey information as objectively as possible. I try to make clear what are the facts and what are my opinions. But in today's media, it's increasingly hard to figure out what are the facts and where the facts are being shaded by opinion. That's why when I look into news events, I first go to Ground News. Ground News is my solution for getting to the facts of important stories but also to see how left, right and center are seeking to convey the same exact story. Take for example, the recent Senate rejection of dueling healthcare bills as the Obamacare deadline nears. To understand the story, I went to GroundNews.com and clicked on that particular story headline. There, I immediately saw four tabs, left, center, right, and bias comparison. When I clicked on the center tab, a series of headlines appeared all from center leaning sources. I could then click on any of those headlines and read the story at the source. The same happened when I clicked on the left tab and on the right tab. The bias comparison tab showed Ground News's own analysis of how all three political leanings conveyed the same exact story. I find the Ground News system enormously helpful because it allows me to easily separate the facts from opinions. I use Ground News and I recommend you try it out. Go to GroundNews.com/REAL to get 40% off their unlimited access Vantage subscription. That's GroundNews.com/REAL GroundNews.com/REAL and if you don't mind, use this link to get the discount so they know I sent you. The link began over the weekend with the United States taking Maduro and his wife out of Venezuela. So, at least 50% of the S&P is tech and there is no other developed country in the world where tech dominates to such a degree. The dominance of tech caused by AI capital investment of late is creating, increasing pressure on both the consumer and the consumer-driven sectors of the S&P 500. The market is now unmore from everyday life, even if parts of the K-shaped economy get worse. The market might, I repeat, might power through it as long as current tech and AI trends remain intact. However, if there is ever a recession or if AI spending does slow, there is going to be a rush to the exits. The decline will almost certainly be fast and very ugly. Hi, this is Steve Eisman and this is The Weekly Wrap. This is our first wrap for 2026 and I want to wish my viewers and listeners a very healthy and happy new year. This wrap is for the week ending January 9, 2026. The week began over the weekend, with the United States taking Maduro and his wife out of Venezuela. They were arraigned in New York federal court on Monday. I'm sure there will be long-term ramifications, but as far as the market was concerned, it was basically a non-event. The market rallied on Monday and treasury yields and all prices were largely unchanged. Oil stocks however did rally. And after Monday, the market largely continued its new year rally on very little news. The S&P 500 closed 2025 up 16%. And NASDAQ was up an even stronger 21%. And in my last wrap of 2025, I reviewed the year and the market's strong performance. I also dug down into the four major themes of the year and how those themes played out in 2025. And the four themes were, one, the K-shaped economy, two, the AI revolution or an AI bubble, three, fears about the growth in private credit, and four, affordability for the consumer. Because earning season does not start until next week when the bank's report, on this wrap, I'm going to discuss the five long-term structural themes that I think are crucial to understanding the market's evolution. I am taking a broad and historical view of the market with the focus on these five structural market themes. Over the year, we will discuss how these themes play out and also how these themes will continue to play out over multiple years. Keep in mind that theme one, which we'll mention in a second, causes the other four themes. And the five themes are, one, tech and tech-related stocks dominate the market. Two, traditional consumer stocks matter less and less. Three, even though 70 percent of the US GDP is consumer driven, the stock market's movements are less and less driven by consumer stocks. Four, the stock market has become unmoored from everyday life. And finally, number five, the above four trends are all reinforced by index investing. You understand how the market has changed? Let's go back in time and take a look at the S&P 500 sectors as a percentage of the S&P over the last ten years. I'm going to show you three tables displaying sector weightings in the S&P 500 in 2025, 2020, and 2015. The comparisons, however, are not exactly apples to apples, but they're still very useful. Before studying the significance, I wanted to get a little granular and discussed shifts in the sectors. Prior to 2016, the S&P 500 was composed of ten sectors. But in 2016, S&P removed real estate from the financial sector to create an 11th sector real estate. Also, prior to 2018, the telecommunications services sector was composed largely of just AT&T, Verizon, and T-Mobile. And it was a tiny sector, only 2% of the S&P. In 2018, it was renamed the communications services sector and was expanded to include major companies from InfoTech and consumer discretionary, such as Meta, Google, Netflix, and Walt Disney. But even with these adjustments, we can still discern important trends. Let's connect the five themes to the change in the stock market sectors over the past 10 years. Now here, I show the sector weightings as of the end of 2025. And as you can see from this table, InfoTech is by far the largest sector at 35%. So theme number one, tech and tech-related stocks dominate the market. But before looking at how these weightings have changed over the past 10 years, we need to examine some very serious implications of the current weightings for investing. Whether investing as a retail investor and stockpicking or buying index funds or using a money manager to stockpick and to make asset allocations, the dominance of the InfoTech sector at 35% has changed investing in many ways. The US market is the tech heaviest market in the developed world. And this large weighting presents two significant problems. First problem, the tax problem. Embedded unrealized tax gains, especially in tech stocks, are large enough to override almost all factors. Retail and institutional investors alike won't sell unless the rug is pulled out beneath them and they are forced to sell. And the second problem, I call this the too big and too little problem. First, the too big problem. Institutional portfolio managers cannot invest however they like because they operate under risk restrictions. Many institutional portfolio managers are required to invest in each of the 11 sectors of the S&P and they can only overweight or underweight sectors within carefully crafted parameters. In other words, they can overweight or underweight a sector by only so much, equally important when they buy a new stock. The size of the initial position can only be so big, say 5% of the portfolio. And if over time that position gets too big, it is only allowed to get to a certain size for it has to be trimmed back. Now historically this has not been a problem for active money managers and their clients, but today, given the size of the largest companies, it presents a huge problem, forcing both the realization of gains due to the forced exit from large positions and the sectors growing the fastest, meaning tech, and repeated risk of underperformance versus the market indices. As long as large cap tech stocks continue to outperform over time, by definition, active managers will underperform. And large cap managers underperform assets flowed towards passive index and ETF investing, which continue to garner the majority of flows. Now we can see the pressures facing active managers just by looking at the S&P 500 weightings of the top three largest stocks as of year end 2025. At the end of 2025, NVIDIA was 7.7% of the S&P 500, Apple was at 6.8 and Microsoft was at 6.1%. The sheer size of NVIDIA, Apple and Microsoft makes it difficult for active managers to overweight them, and in many cases, their risk parameters forced them to underweight them. We will have more to say about this in a bit. And now for the two little problem, before we move on, I just want to focus on this problem because it's so interesting. The two little problem for those active managers who are required to make investments in every sector is based on their limited capacity to even focus at all on the smaller sectors. Focusing on info tech is required because the sector is composed of 70 companies with a weighting of 35%, however the five smallest sectors, consumer staples, utilities, materials, real estate and energy all add up to only 14% of the S&P. Take real estate, it's only 2% of the S&P 500 and it's composed of 31 companies. If you are a large generalist active manager, where are you going to spend your research time? Real estate is only 2% of the S&P, and active managers can generally only overweight a sector by so much. It hardly seems worth spending a lot of time researching 30 real estate companies so that you can buy probably only 1% to 3% position. You're better off spending your time researching the 70 companies in info tech where you can make multiple investments. That's why the small sectors will remain small so long as tech dominates. Now when the two big problem meets the two little problem, active portfolio management is often hamstrung and the ability to successfully outperform the industry's year after year is extremely challenging. Now let's dive into the details of how the sectors have changed over the past 10 years. Let's first look at the 1231 2020 table where info tech was the largest sector at 28% and healthcare was second at 13%. And now let's look at the 1231 2015 table where info tech was still the largest sector, but at only 21%. Financials were second at 16%, but back then real estate was included in financials. Healthcare was third at 15%. It's important to know the reshuffle that occurred in 2018, known as the Defanging of Facebook Apple, Amazon, Netflix and Google and their creation of the communication services sector as we know it today. This reshuffle was a hat tip to the 10 year trend towards increased concentration in fewer and fewer stocks and sectors. Because there has been other stock shifting in the sectors, this summary is meant for directional purposes only. So if we look at 2015, telecom, consumer discretionary and info tech amounted to 36% of the S&P. By 2020, after the 218 rejiggering where entertainment stocks got moved from consumer discretionary to the new communications services sector, info tech and communication services without consumer discretionary was 39%, and in 2025, the combination of info tech and communication services was 46% of the S&P. That's a 10% point movement in 10 years. Another way to look at it is if you just take the current info tech sector at its 35% waiting and then add back companies like Google, Meta, Amazon and some others, you easily get to 50%. So at least 50% of the S&P is tech, and there is no other developed country in the world where tech dominates to such a degree. Also, the second largest sector in 2025, financials, is 60% smaller than just info tech. And still, that understates tech's current dominance. The convergence of market performance into fewer and fewer stocks and fewer and fewer sectors cannot be overstated. Themes 23 and 4 are all driven by how a broad-based, but tech-dominated stock market has divorced itself from the lives of the most consumers. Although 70% of the U.S. economy is consumer driven, the S&P is less and less driven by consumer stock performance. Now going back to the fourth themes I discussed in 2025, the K-shaped economy, the AI revolution or an AI bubble, fears about the growth in private credit and affordability, the dominance of tech caused by AI capital investment of late is creating, increasing pressure on both the consumer and the consumer-driven sectors of the S&P 500. Also, put yourself in the shoes of the typical consumer. What do they buy every day? What do they care about? Where are their affordability concerns? They buy and worry about the costs of drugs and health insurance. Health care, they want to buy a home, but can't afford it, consumer discretionary. And they buy detergent and toilet paper all the time, consumer staples. All three of these sectors suffer from terrible price inflation. That's the life of the typical consumer, and that difficult life is no longer reflected very much in the S&P 500. In a sense, the market is now unmoored from every day life. This is just another but more historical way to look at our K-shaped economy. There are entire sectors or sub-sectors like housing that are just doing poorly, but because tech so dominates the market, they just don't matter. The implication of all this are crucial. Even if parts of the K-shaped economy get worse, even if the overall economy stagnates. However, if AI trends falter, I would expect an enormous correction. Let's look at three consumer-related sectors, health care, consumer discretionary, and consumer staples, and see how they have done. This table is incredibly illuminating. The combination of health care, consumer discretionary, and consumer staples has declined from 38% in 2015 to only 25% of the S&P 500 as of the end of 2025. Even if we adjust for the creation of the communications sector in 2018 and the move of Disney and Netflix out of consumer discretionary and into communication services, the reduction of consumer stocks as a percentage of the S&P is stunning. Yes, I know companies like Apple sell products to the consumer and Meta and Google interface with the consumer all the time, and the US economy is 70% driven by the consumer. Even with all this being true, this consumer "dominance no longer reliably moves the market." That remains the dominant force, and now we turn to theme 5, the impact of index investing. The key takeaways are, there is potentially bad news here, which we will get to. Index investing is 60% of all equity market flows. However, it's critical to note that while 60% of total flows go to passive indices and ETF funds, 40% of flows are actively invested. Companies get amplified by the fact that index investing dominates investing. This means that on a day-to-day basis, 60% of all buying of stocks is not done by human beings making an actual decision. It's just index and ETF funds buying the same stocks they own and the same ratio that they own them. Also, most indices are weighted average as opposed to equal weighted, which results in the big getting bigger. This is one reason why tech keeps getting bigger and large stocks keep getting larger. Human beings are not making decisions here, it's all about inflows. No index fund manager ever decides that Nvidia or Google or Meta are overvalued. The indices are computerized and just buy stocks as money comes in, it's all passive. The 40% of flows which are actively managed are critical to the health of the market. Now one could argue, and some have, that the dominance of passive investing has broken down the mechanics of traditional price discovery and simply created a herd mentality where investors just pour money into passive indices and ETFs and stocks are bought accordingly. However, to say that price discovery is gone is in my view an over exaggeration. Take the recent performance of Oracle. When Oracle reported its third quarter 25 earnings and posted a backlog in excess of 500 billion, the stock took off from $225 to $330 in a matter of days. But then, the market began to realize that most of that backlog was from open AI and that Oracle would be funding that capex with debt and not cash flow. The stock corrected hard and is today below where it was before it reported third quarter results. That's price discovery. So it's not gone. It's not gone because passive flows are 60% of total flows and not 100%. Active investors still play an important role. But the really bad potential news is this, if there is ever a recession or if AI spending does slow, there is going to be a rush to the exits. Index fund investors will press the sell button and passive index fund managers will sell automatically. They will be a rush to the exits with few buyers on the other side. I would expect a quick replay of at least the February 19 through April 8 of last year correction when the market declined from point to point by 19%. If there is ever an actual recession or AI bubble burst, the decline will almost certainly be steeper. It will be fast and very ugly. However, to reiterate, on a day-to-day basis where there is no crucial news, passive flows dominate. And now for the mailbag, only time for one mailbag this week. This is from Manuel, who asks the following, quote, "I wanted to reach out to get your perspective on PayPal's recent performance. The company has delivered several consecutive earnings beats, yet the stock continues to underperform. I'm trying to understand the disconnect between the financial results and the market reaction. Could you share your view on what might be driving this weakness? Additionally, I would appreciate your thoughts on PayPal's current valuation. Do you see this as a potential value trap? Or do you believe the market is materially undervaluing the company at this stage?" Unquote. Great question. Let me start out by saying that during COVID, the payment space was a hot space. Every company needed to move its business to the internet, and they needed payment companies like PayPal to facilitate that move. The company earnings exploded and so did the stocks. PayPal reached a high of $289 in August of 2021, the height of COVID. Since then, PayPal, like many other payment stocks, has done poorly, with PayPal ending 2025 at $58, and 80% decline from its August 2021 peak. With the exception of Visa and MasterCard, the entire payment space has derated and gotten incredibly complicated. Now with respect to PayPal, the stock was down 31% in 2025 alone. This is despite the fact that earnings grew 21% in 2024, and while the company has not yet reported its fourth quarter, all of 2025 is expected to grow 15%. The stock has derated enormously. Why? With respect to results, yes, PayPal has beaten earnings estimates, but it is also disappointed on revenue and other metrics, but that is just a symptom. The problem is that in its heyday, PayPal was the way to pay for things on the internet. It was ubiquitous, and it was first, but that is no longer true. The basic problem with the entire payment space, including PayPal, is it only Visa and MasterCard have what appears to be insurmountable franchises because of the massive size of their networks. Everyone else from PayPal to Block to Bill is subject to intense competition, and everyone in the payment space is entering the business of its competitors. No one is safe, and it is showing up in weaker revenue and margins at many companies. Now with respect to PayPal, its franchise value has definitely eroded. It is no longer necessarily the payment method of choice on the internet, and investors question constantly the long term value of the company. That is why, despite its earnings growth, the PE multiple is a lowly 10 times the 2026 estimate. Until PayPal can prove otherwise, the stock will remain a value trap in my view. And that's the first wrap for 2026. This last Monday, I posted a panel discussion with both Dan Ives, the tech analyst of WEDBUSH, and Chris Verone, the market strategist at Stratigus, where we reviewed 2025 and made predictions for 2026. So check it out. This coming Monday, I will post an interview with Morris Bokari, the CEO of a private company called Claimable. Claimable is a very, very interesting company. It's a company where a consumer can go to for help in appealing a denial of a health care claim by a health insurance company. Morris Bokari has a unique perspective on what he sees are the inherent problems with the United States' health insurance system from private health insurance, to Medicare, to Medicaid, to Obamacare. And we discussed these issues at some length. I can't emphasize this enough. He brings a very, very unique perspective. And I hope you tune in. We hope that everyone had an amazing holiday season and happy new year. And I'm excited to share 2026 with my viewers and listeners. If you haven't already, please consider subscribing to our YouTube channel so you can receive these weekly wraps along with our podcast and the financial literacy master classes. Everything is the best way to help the channel, and we greatly appreciate your support. Also, be sure to check out our website, realisemanplaybook.com, there you can easily access all our episodes as well as the financial literacy master classes, our new blog, and some other goodies as well. Check it out and see you soon. This podcast is for informational purposes only and does not constitute investment advice. The hosts and guests may hold positions in stocks discussed, opinions expressed on their own and not recommendations. Please do your own due diligence and consult the license financial advisor before making any investment decisions.