Broadening Delivered. Now Prepare for Volatility.

Franklin Templeton argues that the broadening bull market has been validated but is entering a more selective and volatile phase.

• The thesis, first published in January 2025 and expanded in January 2026, anticipated a shift away from concentrated US mega-cap technology leadership toward US small-caps, equal-weighted equities and emerging markets.
• Over the past 18 months, the MSCI Emerging Markets Index returned 62%, the Russell 1000 Value Index 40% and the Russell 2000 Value Index 39%, versus 25% for the Magnificent Seven.
• Earnings have become the main support for the market, and the authors argue that stock prices follow earnings over the long run; AI is also presented as an economic story rather than only a technology theme.
• The authors see the bull market as intact, supported by strong earnings and exceptionally broad global participation, but note that liquidity is becoming less accommodative and market leadership more selective.
• Higher valuations in parts of the market, tighter monetary conditions and increasing dispersion are expected to increase volatility, including during the midterm election year.

Takeaway: Investors should remain invested and globally diversified, emphasize earnings quality rather than concentrate in expensive momentum stocks, and retain flexibility to buy pullbacks, while recognizing that diversification does not eliminate losses and that emerging- and small-cap markets carry higher risks.