Earnings breadth is expanding beyond AI: Raymond James

• The market is earnings-driven, with AI stocks being a key momentum driver.
• Defense companies are currently priced very favorably and are under-appreciated, offering diversification opportunities.
• Small caps, particularly small-cap growth, have outperformed the S&P 500 year-to-date, making them attractive on weakness.
• For small caps, focus on idiosyncratic stories and specific sectors like semiconductor testing equipment, industrials, and biotech, rather than broad index investing.

The analyst discusses the current earnings-driven market, emphasizing the importance of leaning into earnings momentum. He suggests broadening investment focus beyond AI to include defense, which is seen as favorably priced, and small caps, which have shown significant year-to-date outperformance. Specific sectors like semiconductor testing, industrials, and biotech are highlighted for potential growth.