Market Sentiment and Concentration Risk - Investors may be blindsided by concentrated market positions, where a small number of stocks dominate returns, leading to potential volatility in the S&P 500 [2][5] - The top 10 stocks, primarily mega-cap AI companies, account for 41% of the S&P 500's market share and have driven over 70% of this year's returns [5][6] - The equal-weighted S&P is only up about 6% year-to-date, contrasting with the cap-weighted index's nearly 16% increase, indicating that the average stock is underperforming [6] AI Adoption and Valuation - A recent Morgan Stanley note indicates that 24% of early AI adopters report benefits from AI, up from 15% a quarter ago, suggesting growing efficiency gains [7] - The adoption of AI may justify elevated valuations for certain stocks, as companies experience margin benefits and potential reductions in headcount [8] Market Momentum and Sector Performance - The dollar has increased over 3% since its low on September 17, indicating a shift in market sentiment [10] - Healthcare is currently a leading sector in Q3, with a focus on quality companies that have strong balance sheets and consistent earnings [12][13] Specific Company Insights - Merck's stock has declined nearly a third since last July, primarily due to concerns over the loss of exclusivity for its drug Kitruda in 2028, which generates about half of its revenue [14] - Merck offers a nearly 4% dividend yield, with consistent growth over the past decade, and when including buybacks, the total shareholder yield approaches 8% [15]