The S&P 500 is trading near a record high. But most of the stocks inside it are nowhere close.

About 84% of S&P 500 stocks now trade at least 10% below their all-time highs, according to an analysis by The Kobeissi Letter. And more than half are at least 20% below their peaks—putting them in textbook bear market territory.

Let’s break down why the index and your portfolio are telling two different stories… the three sectors investors should buy (and one to avoid)… and what to watch going into the end of the year.

How an index hits a record while most stocks fall

The S&P 500 is weighted by market cap. The bigger the company, the more it moves the index.

And right now, a handful of AI giants are doing the heavy lifting. In fact, the 20 largest companies account for roughly half of the index’s total market value.

That means a relatively small group of strong-performing stocks can keep the index near record highs, even as hundreds of other companies struggle.

When the index hit its record last week, only 15 of its 504 stocks did the same.

In other words, if you own much outside the AI leaders, you’ve probably felt this bear market.

3 sectors to buy right now

The clearest opportunities are in the areas benefiting from continued AI infrastructure spending. Big Tech is investing heavily in data centers, creating demand for everything from cloud computing and specialized chips to electricity.

1) Cloud computing

AI is driving enormous demand for cloud computing, as businesses rent the processing power and infrastructure they need to develop and run AI applications. Amazon (AMZN), Microsoft (MSFT), and Alphabet (GOOG) are among the biggest beneficiaries because they already operate massive cloud networks.

In fact, Amazon could easily become the world’s largest company within two years, reaching a $5 trillion valuation thanks to demand for its cloud services.

2) Semiconductors

Every AI data center runs on chips, and Marvell Technology (MRVL) just showed how big that demand could get.

At its investor day last week, Marvell said it could reach $70–$90 billion in yearly revenue by fiscal 2031. For context, the midpoint of that estimate is nearly 10 times the $8.2 billion it generated in fiscal 2026.

Marvell designs custom chips and the connections that move data between them. Its key customers are hyperscalers, the giant cloud companies like Amazon and Google that build the world’s biggest data centers.

Historically, semiconductors have been a boom-and-bust business: Companies ramp up production during periods of strong demand, then face oversupply when spending slows. But Marvell’s long-term targets suggest it expects the AI buildout to support strong chip demand for years.

3) Nuclear power

All those chips need one thing: electricity.

Last week, Google signed a 20-year deal to buy nuclear power from Constellation Energy (CEG). That guaranteed revenue will allow Constellation to invest $4.3 billion to upgrade 11 existing nuclear units in Illinois, Pennsylvania, and New Jersey.

The length is the point. A 20-year commitment signals that Big Tech expects its power needs to last decades.

Nuclear stocks have taken a beating, creating potential opportunities for investors. And deals like Google’s show why long-term demand remains strong: Big Tech is committing billions of dollars to secure electricity over the long term.

The sector to avoid

Business costs are surging, and consumers are tightening their spending. As a result, consumer companies are struggling—particularly those facing rising expenses, slowing sales, and limited pricing power.

Take Nike (NKE). Shares have plunged roughly 47% this year as the company struggles with weaker sales and growing competitive pressure. Last week, Berenberg downgraded the stock to Sell, citing concerns about Nike’s long-term competitive position.

With earnings season underway, investors should pay close attention to what management says about the quarters ahead.

Even companies that beat Wall Street’s earnings estimates could face pressure if their outlooks point to weakening demand or shrinking profit margins.

What to watch into year-end

With so many stocks trading well below their highs, investors should watch one more opportunity as 2026 winds down: tax-loss selling.

Toward year-end, investors often sell losing positions to offset taxable capital gains. And with AI stocks delivering massive gains this year, investors may have an added incentive to sell their losers before December 31.

That selling pressure can push already beaten-down stocks even lower, regardless of whether their underlying businesses have deteriorated.

Historically, many of those stocks rebound in January once the selling pressure subsides.

Keep an eye out for quality businesses that get caught up in year-end tax-loss selling.

The key is distinguishing a temporarily beaten-down stock from a business facing lasting problems.

Want to know more about how Frank is managing the silent bear market?

Tune into Wall Street Unplugged.