The S&P 500 has returned 10% year to date, trailing small-caps, value, and international stocks, according to Barron’s. The bigger risk, the report argues, is that the AI trade now runs through nearly every corner of the market — so investors nearing retirement need protection beyond a single index.
The S&P 500 has delivered a 10% return year to date, a respectable number that still lags several other parts of the market, Barron’s reports. The S&P SmallCap 600 index is up 21%, large-cap value is ahead 16%, and international stocks are up 13% after surging 32% last year.
That scorecard matters less for savers decades from retirement, who have time to ride out boom and bust cycles. For investors a few years out — or already drawing income — the report says diversification by asset class is not enough on its own.
The AI trade runs everywhere
The reason is concentration. The artificial-intelligence trade, and tech more broadly, now infuses far more than just the S&P 500, Barron’s notes. Small-caps have drawn a boost from AI spending, some value indexes hold relatively cheap tech stocks, and AI has become a driver of emerging markets through South Korea and Taiwan.
Because of that spread, companies of all sizes could be hurt if the momentum stalls. The report points to IBM’s 25% collapse — its worst one-day loss in history as a warning signal that even relatively sturdy companies with attractive dividends are vulnerable.
Ways to build a cushion
Barron’s suggests adding defensive sectors such as consumer staples and pharmaceutical stocks, which may help in a selloff. For retirees, a cash cushion of up to two years’ worth of withdrawals can insulate daily spending from market swings.
The report also warns against chasing recent winners. According to Morningstar’s Christine Benz: “Be careful not to performance-chase”, a pattern where investors add to an asset only after it surges.
For those overweight the S&P 500, the piece floats trimming into small- or mid-cap funds — while weighing tax consequences in a taxable account. It cites the SPDR Portfolio S&P 600 Small Cap ETF at 13% tech and notes the S&P 500 itself sits at 47% tech.
Source: Barron’s
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