The S&P 500 has rallied 17% from its March lows, and the firm managing $1.74 trillion in assets says what matters most isn’t how fast the recovery happened. Franklin Templeton’s latest market commentary, published on May 19, 2026, zeroes in on where equity gains are heading next, and the answer could change how you position your portfolio for the rest of the year.

Chris Galipeau, senior market strategist at the Franklin Templeton Institute, argues that the market’s leadership is rotating away from the handful of mega-cap technology names that dominated returns for the past two years. Smaller companies, international equities, and sectors that lagged for years are now outpacing the giants, and Galipeau’s team sees the trend persisting.

For investors whose portfolios are heavily concentrated in large-cap tech, Franklin Templeton’s commentary frames the broadening rotation as a meaningful shift. The broadening that Wall Street has debated for over a year appears to be taking hold, and the earnings data supporting the thesis continues to strengthen with each passing week.

Franklin Templeton reiterates its broadening call on U.S. and global equities

Galipeau’s commentary, titled “From the US Market Desk: Now what?”, makes the firm’s position unmistakable: Franklin Templeton is reiterating its “broadening” call and emphasizing a bullish stance on small-cap and mid-cap stocks in the United States, along with emerging-market equities and Japan.

Year-to-date performance data illustrate the shift in stark terms, with six of 11 Global Industry Classification sectors outperforming the S&P 500, Galipeau wrote. 

Energy is leading the pack at 31%, followed by information technology at 18%, communication services and consumer staples each at 11%, materials at 10%, and industrials at 10%, while financial services and healthcare trail the group at -7% and -6% respectively.

The firm’s data also reveals a dispersion that underscores how selective this market has become beneath the surface of the headline index returns.

Roughly 170 names, or 34% of the S&P 500’s components, are outperforming the broader index on the year, while 242 names, or 41% of components, are trading in negative territory despite the benchmark’s strong overall gains, Galipeau noted.

S&P 500 earnings growth is running well above Franklin Templeton’s initial forecast

The backbone of Galipeau’s broadening thesis is corporate earnings, which the strategist describes as the long-term driver of stock prices rather than geopolitical headlines.

The S&P 500 earnings-per-share estimate now sits at $336.58, up another $1 on the week, and that figure represents year-over-year growth of 21%, which exceeds the high end of the firm’s 8% to 13% EPS growth forecast underlying its S&P 500 year-end target range of 7,000 to 7,400, Galipeau wrote.

Franklin Templeton Institute market strategist Taylor Topousis noted that S&P 500 earnings estimates have climbed roughly 8% since January 1, 2026. At the sector level, energy earnings estimates have surged 46% since the start of the year, with materials and technology both rising about 16% and communication services gaining 12%, the commentary stated.

On a global scale, the strength in earnings revisions is even more pronounced outside the United States, with emerging-market estimates rising a striking 25% since January 1, compared to the S&P 500’s 8% gain, the firm’s commentary showed.

S&P 500 earnings growth is crushing forecasts as energy, tech, and emerging markets fuel stronger global corporate performance in 2026.

TIMOTHY A. CLARY/Getty Images

Multiple Wall Street strategists see the broadening trend extending globally

Franklin Templeton is not the only major firm pointing to this rotation as a defining market theme for the rest of the year.  Jeff Schulze, head of economic and market strategy at ClearBridge Investments, has highlighted the same dynamic in public remarks, saying that the shift extends well beyond American borders.  

“We think that broadening theme isn’t just here in the U.S.; we think it’s kind of a global theme,” Schulze told Chief Investment Officer magazine.

I think of it as this powerful one-two punch of an economy that’s doing better than expected, supported by fiscal and monetary stimulus and combined with broadening earnings growth. And as long as they continue, you may continue to see this rally for the next few quarters

Galipeau also highlighted the improving risk-reward profile of the Magnificent 7 stocks, including Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla, noting that these names look more attractive at current prices than they did at the start of 2026. 

That nuance distinguishes Franklin Templeton’s view from a simple anti-tech narrative and instead frames the opportunity as additive diversification across equity segments.

The Middle East conflict and rising inflation pose the biggest threats to the equity outlook

Galipeau identified the duration of the U.S.-Iran conflict as the primary risk to the firm’s constructive outlook, warning that higher oil prices function like a tax on consumers and that the negative effects on household budgets will broaden over time if energy costs remain elevated. The firm nonetheless maintained that the U.S. economy is well-positioned to absorb the pressure.

On the inflation front, the latest core personal consumption expenditures reading came in at 3.2%, the highest print since November 2023, and the firm flagged hot April Producer Price Index and Consumer Price Index reports as additional headwinds. 

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Higher oil prices threaten to push core inflation measures even higher if energy costs remain stubbornly elevated, and the combination of sticky prices and geopolitical uncertainty is pushing interest rates above Franklin Templeton’s initial expectations for the year.

The firm entered 2026 expecting the Federal Reserve to deliver two interest-rate cuts, but federal funds futures are now pricing in a potential rate hike by March 2027, a sharp reversal from the rate-cut consensus that prevailed at the start of the year. Galipeau wrote that the Fed is expected to hold rates steady as the conflict plays out and inflation data remains above the central bank’s target.

Galipeau sees consolidation ahead but stays bullish on diversified equity exposure

Galipeau cautioned that the speed of the recent rally has him worried in the short term, even as the fundamental drivers remain firmly in place. 

He noted that the parabolic shape of the advance and a new exchange-traded fund that raised $10 billion in six weeks carry echoes of the speculative excess that preceded the market’s downturn in early 2000, and he wrote that he is not looking to commit new capital until the current advance pauses.

The firm’s bottom line, however, remains constructive and centered on diversification across geographies and market capitalizations. 

Galipeau wrote that a diversified equity playbook including U.S. large-cap, mid-cap, and small-cap exposure, balanced between growth and value styles, along with a mix of emerging-market and developed international equities, represents an attractive approach for the remainder of 2026.

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