AI has been the big market mover. How are you thinking about it?
Bill Nygren: Any time you go through a major transition, like we're going through right now with AI, investors typically focus on the companies that are what I would call the “arms providers.” In my career, this is the third major tech innovation cycle we've had. Going back to the 1980s, it was computers; 2000s, it was the internet. And more recently, it's been AI. And I think the initial focus by investors in the '80s was on the computer companies. 2000, it was AOL and Cisco. Now the focus is on chipmaker Nvidia and the hyperscalers.* But with hindsight, the biggest beneficiaries tended to be the companies that were best at utilizing the new technology. And they put that to work to gain a larger competitive advantage. That's really what we're focused on at Harris | Oakmark – trying to find the companies that maybe are still selling at single-digit PEs (price-to-earnings) or low teens multiples that we think are ahead of their peers in terms of utilizing AI and that might allow them a little better margin or opportunity, or to gain market share.
Jack Janasiewicz: The market is calling out the hyperscalers* right now for their big CapEx [capital expenditure] spend. But we've heard from the hyperscalers during Q3 earnings calls, and they've upped their guidance for the end of the year in terms of CapEx. They've given us numbers for 2026 already, and those are up vs. 2025, as well. There's still going to be a strong CapEx spend for the AI buildout. The way to maybe position around that is not necessarily allocating to the hyperscalers themselves, but to Bill's point, you want to focus more on the beneficiaries of that CapEx spend. That money is going to become some other company’s profits. And those are maybe some of the ancillary plays on the AI trade that you want to start to take advantage of. So one way to insulate your portfolio might be to simply make sure that you don't have significant exposure to the hyperscalers, but make sure you still have exposure to the CapEx receivers, if you will.
Mike Buckius: And also not be allocated to just tech. I just saw the stock of a sleepy mid-Atlantic utility company is up a lot because they're putting a lot of money in grants to improve and restart of the Three Mile Island power plant to support data farms. So I think that ancillary support of power generation and shoring up the electricity grid is worth consideration. I think all those have knock-on effects that not only make the country better, but I think help spread efficiencies across a lot of industries that may have nothing to do with AI.
Matt Eagan: Another point to make is that the administration, or really DC, views AI as sort of an existential thing. It's directly connected to geopolitics and competing against the enduring threat of China. Many folks feel like they must win at all costs. That might be true. So I think there's going to be efforts to really pump this AI growth to win. Whatever it takes on the energy side, etc., that's the objective from a policy-level perspective. So I think we’re going to see a lot of capital spend, and not all of it is going to be spent well. There's going to be huge winners and huge losers. Also, when you tie it into interest rates and the deficit, the big bet the Trump administration is making is on productivity.
What risks may be overlooked by markets today?
Eagan: The bond market is sort of a temporal beast, right? Looking longer term, what's priced into the market is that inflation is going to come back down and get close to the 2% Fed target. I think that's a mistake. I think inflation is going to be a persistent problem, and it's related a lot to government policies. We're talking about geopolitics and all these things that are feeding into the structural tailwinds for inflation, most of which end up increasing our fiscal deficit. So I think the deficit is going to come to the fore again in the future. But for now, I think this economy is going to be allowed to run hot and the Fed will be, unpleasantly, OK with inflation around 3%. And if interest rates are running higher in nominal terms, then I think we could still have valuations that are OK. The market can do well with higher growth levels.
Janasiewicz: When things go bad, it's usually because of a tightening in financial conditions, a tightening of liquidity in the marketplace. And what triggers that tends to be rate hikes by the Federal Reserve. Are we in that environment right now? I don’t think so. We still have a way to go before we start talking about Fed hikes. In our worst-case scenario, maybe the Fed pauses and we get more cuts priced into next year. But a pause and additional cuts later in 2026 are very different than hikes. Hikes are an extremely low probability in our view. We're very far away from seeing financial conditions tighten at this point in the cycle.
Buckius: Something that's becoming a more appreciated risk, or concern in the equity markets, is the concentration of benchmarks and how relevant the S&P 500® is as a measurement of the stock market. As large companies are growing and outpacing the growth in small companies, the S&P 500®, which is a market-cap-dominated index, is really being influenced and overwhelmed, if you will, by the performance of the top 10 names, especially the Mag 7**. . . . The returns of the S&P 500® really aren’t a measure of all 500 names in the S&P 500®.
Nygren: I completely echo that. The S&P 500® has really become a concentrated growth fund. And I think a whole generation has been taught the low-risk way to invest in the stock market is just spread your assets across the S&P 500®. And I think some individual investors get the mistaken impression that they have 1/500ths of their assets in each of the 500 companies. So I think investors that are measuring their success or failure against the S&P 500® are becoming disconnected from their personal financial goals. And I think it is incumbent on our industry to direct them to a better benchmark that better ties them to their goals for capital, whether it is college education, home buying, retirement, etc.
Is cryptocurrency ready for a place in portfolios?
Nygren: I guess you can't argue against crypto gaining more acceptance. Because it has to. But as we look at it, and I would say the same thing about gold, I don't think we at Harris | Oakmark bring anything to the table to assess what an ounce of gold or one Bitcoin is worth. Whereas, what we do well is identify businesses that we think we can buy at a discount and will appreciate nicely over time. Bitcoin and gold certainly provided interesting returns this year. But if you look back over the last 20, 50, 100 years, equities have provided very good returns.
Buckius: We have seen a good crypto run already this year. Crypto tends to overshoot. And I think we've seen price levels come down a bit as we’re giving back some of the excesses in the market in November. So, I think that volatility makes it challenging to invest in crypto as a store of value or a dollar replacement. But I think it is effective to invest in crypto if you're looking for a way to get some money out of the stock market.
Janasiewicz: I just don't understand what problems we are solving by investing in crypto. I still can't walk into a store and buy a Coke with Bitcoin. I get it that it has become a bit more appreciated and adopted in 2025. But I'm not sure what issues it solves. I guess if you want to allocate one or two percent of your portfolio to crypto, have at it. But a lot of things that I hear as the argument for Bitcoin . . . it's a store of value, it's protection against a dollar devaluation, an inflation hedge, these things come and go. The numbers back it up sometimes and sometimes not. So to me, that's not really a very good defense in terms of why you want to own it.
Eagan: On the crypto side, I view it like a meme stock. I don’t know what to do with that. Then there’s Bitcoin, which I think has some uses. For example, if you are in another country and you want to get money out, Bitcoin has been effective for that. Then there’s the emerging stablecoins. Treasury Secretary Bessent appears to want to create a stablecoin so we can shove more Treasury bills into it. It seems that is what they may exist for. So I think they’ll look a lot like money market funds.
Is there a case for international equities once again?
Nygren: Typically when we hear where people want to allocate, they're often looking at where they wish they had been allocated a year before, and then they're moving in that direction. Clearly at a backward glance this year, you wish you had more money invested internationally. But if you talk to our international team about enduring a decade of international equities underperforming US, they would say it is not too late to look at restoring your international allocation.
I wouldn't undersell the US. I think the opportunity that we see at Harris | Oakmark in putting a diversified portfolio together of stocks that sell under 15 times earnings is a very different risk bucket than what you're taking with the S&P 500®.
Buckius: I agree with Bill. I wouldn’t undersell the US equity market. I believe that the growth trend is there. We do see more people interested in looking at Asia stocks because there tends to be more growth opportunity there than in Europe. But I think maybe there is a certain amount of bias that it has performed well in US dollar terms.
Janasiewicz: We are still favoring US equities. When you look at key growth drivers, things that drive quality, the return on equity and margins, US companies compared to what we're seeing coming out of Europe appear head and shoulders better.
When you start to talk about the valuation story out of Europe, parts of the market you want to own in Europe, such as financials, industrials, and tech, are actually trading somewhat expensive relative to their historical valuations. It's the stuff you don't want to own that's so cheap – and that's dragging the headline multiple down. That's why I think a lot of people look at Europe as an attractive place to invest. But again, some of the themes that are still driving earnings right now come from the growth backdrop related to the tech space. That's still a US thing. That's where all the development is happening. But you may want to diversify away from the Mag 7 and play second-order effects.
Private assets, particularly private credit, grew in popularity in our 2026 Institutional Outlook survey. How do you see this trend?
Eagan: At Loomis Sayles, we see a convergence between public and private credit, and it's actually happening faster than expected. The private credit market has matured. If you look at the public and private credit markets side by side today, they look very similar in terms of breadth of types of securities and sectors that exist. Liquidity is obviously a big issue, but I think even the private credit giants who typically didn’t want to have that liquidity premium in their face and have stickier assets are now leading the charge to develop more secondary trading market activity.
To us right now, when we look at the private investment grade credit sector, that’s an even more attractive space to pick up spread and gain more structural protection that we don’t really get in the public market. So we’ve been opening up guidelines on some of our mutual funds and separately managed accounts to allow for some allocations there. I always say credit is credit. So we have the underwriting skills across all of these sectors and can pick the best from the lot.
Lastly, what area of the market looks promising in 2026?
Nygren: Being valuation driven, I think the healthcare sector is an interesting place to find quality opportunities.
Buckius: Overall, the quality factor is attractive to us. This opens up names across many sectors. They tend to be the big cash-flow generators and low-leverage balance sheet companies across tech, healthcare, financials, energy, and consumer discretionary. Not only do they tend to outperform when the markets are good, but they tend to provide a defensive aspect when the markets are choppy.
Janasiewicz: My pick I would say is utilities – getting back to that thesis of CapEx receivers from the AI spend. On top of that, I think the grid desperately needs to be updated, so an infrastructure buildout would support this sector, as well.
Eagan: I would make the case for bonds. What I really like about the bond market today is it’s easier to create a more resilient bond portfolio. This is just by virtue of the yields being higher. So you can build a really nice bond portfolio today.
