The Case for Optimism – and the Stocks It's Pointing To Next

• U.S. economy posted 4.4% GDP growth in Q3 2025 following 3.8% in Q2, marking the strongest back-to-back quarters since 2021, driven by 3.5% consumer spending growth
• The Russell 2000 small-cap index gained 7% in January, far outperforming the S&P 500's 1.4% and Dow's 1.6%, suggesting a leadership rotation toward domestic-focused smaller companies
• Navellier predicts an 'AI Dislocation' around February 25 where investors move beyond obvious mega-cap winners like NVIDIA and Microsoft toward smaller AI infrastructure and enablement companies

Market Summary: Case for Optimism and AI Sector Rotation

Key Economic Data:

InvestorPlace Senior Analyst Louis Navellier presents a bullish case for U.S. equities, citing strong economic fundamentals. The Commerce Department revised Q3 2025 GDP upward to 4.4% annualized growth, following 3.8% in Q2—the strongest back-to-back quarters since 2021. Consumer spending grew 3.5% annually despite elevated interest rates.

Navellier has raised his GDP forecast, now projecting potential 6% annualized growth in 2026 (up from his earlier 5% prediction), driven by tax cuts, consumer demand, AI data-center buildout, improving home sales, and an estimated $20 trillion in onshoring activity.

Market Leadership Shift:

January 2025 saw significant rotation toward small-cap stocks, with the Russell 2000 surging 7% versus the S&P 500's 1.4% gain. This outperformance signals a potential leadership transition from mega-cap tech to smaller, domestically-focused companies.

AI Sector "Dislocation":

Navellier identifies an emerging "AI Dislocation"—not a crash, but a rotation away from obvious mega-cap winners like NVIDIA and Microsoft toward smaller companies building AI infrastructure, power systems, and networking technologies. He characterizes this as "Stage 2" of the AI boom, where lesser-known companies with improving fundamentals could deliver outsized gains.

Investment Implications:

The analysis emphasizes evidence-based optimism over pessimism, recommending investors focus on fundamentally strong smaller companies positioned to benefit from broadening economic growth and AI infrastructure development rather than remaining anchored to first-wave AI leaders.