The overlooked corners of the US market

By Joss Murphy on 2 July 2026 in US

As this year’s Independence Day arrives, the US market is becoming increasingly difficult to navigate. Former ‘hero’ stocks have shown vulnerability, while the next generation may be too speculative for many investors. However, investors don’t necessarily have to decide between the two. There is a whole universe of US companies that has been largely overlooked. Volatility in the technology sector should prompt investors to look at these areas in more depth.

The last generation of winners is flagging. The ‘Mag 7’ is down 5.8% for the year to date. That is around 13% behind the S&P 500*. The reasons for this weakness are clear. These companies have gone from being cash generative, CapEx-light businesses, to pouring billions into the AI infrastructure roll-out. Many are raising debt for the first time. This may prove to be a necessary part of winning the AI race, but it changes the dynamic for these businesses.

A new generation of winners is emerging. The semiconductor companies have rocketed to the top of the performance tables. The PHLX Semiconductor index, which aggregates the major US semiconductor companies is up 138% over one year**. Micron Technology alone is up 799% over a year**. A series of AI-related IPOs, including SpaceX, ChatGPT and Anthropic are also likely to be catapulted into the top tier of the major indices.

This new generation is far narrower than the previous generation, focused exclusively on AI. They are highly valued and, while demand for AI shows no signs of ebbing, every new technology has its bumps in the road. Investors have certainly had a rocky ride in the AI sector since the start of the year, with short bursts of strong performance followed by periods of nervousness.

There are also more positive reasons to look elsewhere in the US market. Earnings growth is broadening out. JPMorgan global head of equities Paul Quinsee, said: “While the ‘Magnificent 7’ tech leaders continue to contribute significantly, profit growth is broadening out to the rest of the index, where the remaining 493 companies should see a meaningful recovery after several years of stagnation.”

There are also drivers for domestic growth. The US consumer should receive a boost from the end to the war in Iran as gasoline prices drop and the threat of inflation contagion falls. Tax cuts in the ‘One Big Beautiful Bill’ are currently finding their way into household budgets, which should also support domestic consumption. Tax cuts for businesses may encourage investment in domestic industry again.

For investors looking beyond mega-cap technology, here are three compelling ways to access opportunities in US equities:

Back small and mid-cap companies

After some years in the doldrums, small and mid-cap companies were on the cusp of a recovery earlier this year. Interest rates looked likely to fall, earnings were reviving and market leadership was diversifying. This nascent recovery was derailed by the war in Iran, but now that it appears to be over, smaller companies may be able to resume their trajectory.

Funds such as Schroder US Mid Cap have little commonality with the major US growth or index funds. Its largest weighting is in industrials, with technology and consumer discretionary companies the other significant weightings in the portfolio. It holds companies such as Repligen, a life sciences company specialising in cell and gene therapy, or Viavi, which makes testing equipment for networks***. It brings in the full diversity of American companies and may be more representative of the domestic economy than large cap funds.

Prioritise dividend income

Another way to bring some diversity to a US equities portfolio is to focus on income. The US market isn’t necessarily associated with income, and the S&P 500 has a yield of just 1.1%****. However, many US companies outside the mega-caps pay decent dividends and the market has an increasing number of dividend aristocrats – companies that have increased their dividends for 25 consecutive years or more. Dividend strategies tend to lean away from lower yielding technology companies.

The JPM US Equity Income and M&G North American Dividend funds both offer a broader exposure than large-cap US growth funds. The M&G fund, for example, holds a handful of the major technology names, including Microsoft, Broadcom and Meta, but also companies such as energy group NextEra, asset management group Ares Management, plus healthcare names such as Unitedhealth and Abbvie***.

The JPM fund also has more diversified exposure. Among its top 10 are financial groups Morgan Stanley and Wells Fargo, healthcare group Johnson & Johnson, plus tobacco giant Philip Morris and energy group ConocoPhillips***. These are traditional American businesses that have been around for decades and showed their mettle through multiple market cycles.

Investors may also find some of the “AI losers” within these funds. JPMorgan, for example, has been re-examining some of the companies that have sold off significantly in the early part of the year. It points out that SaaS names have de-rated nearly 60% since start of 2025^. Quinsee says: “Our research highlights that not all “AI losers” are created equal. IT services and infrastructure companies, for instance, are showing more resilient earnings revisions, now supported by attractive valuations and improving operational momentum.” It is cherry-picking those companies with lower disruption risk.

Focus on quality

The final source of opportunity in US markets may be among quality companies. This may overlap with dividend strategies, but the quality factor has been significantly out of favour. JPMorgan research suggests that historically, quality and value factors have outperformed following significant oil price shocks, while growth and speculative names have lagged. “In our view, the current environment, marked by a high level of speculation and elevated volatility, underscores the importance of quality as a defensive anchor in portfolios.”

Funds such as Brown Advisory US Flexible Equity or GQG Partners US Equity, may thrive in this type of environment. The M&G North American Dividend fund’s approach is also flexible: manager John Weavers can allocate to different styles, depending on where he sees value.

Brown Advisory US Flexible Equity manager Maneesh Bajaj says: “Markets are inherently volatile, and active management does not always align with short-term market movements. At times, investment decisions are only validated with the benefit of hindsight. While outcomes are never certain, our experience suggests that periods of underperformance can be followed by recovery as fundamentals assert themselves over time.

The US is a rich and diverse economy. If investors would prefer that their financial fortunes weren’t tied to endless speculation about the strength or otherwise of AI development, there are plenty of options.

*Source: MarketWatch, at 29 June 2026
**Source: Yahoo Finance, at 29 June 2026
***Source: fund factsheet, 31 May 2026
****as of 30 June 2026
^Source: JPMorgan, 7 May 2026