The Great Rotation of 2026
Sector and market analysis documenting the most significant style rotation in two decades — with rules-based framework, precise thresholds, and sell triggers.
Summary
Comprehensive sector and market analysis documenting the most significant style and sector rotation in over two decades. As of mid-February 2026, the equal-weight S&P 500 outperformed cap-weight by ~5.7 percentage points YTD, and the value-growth spread exceeded 13 percentage points — among the widest differentials in recent market history.
Thesis
The rotation is driven by investor skepticism about near-term payback on a combined hyperscaler AI capital expenditure plan exceeding $600 billion for 2026, compressing multiples on long-duration growth assets even as fundamentals remain strong. This creates a clean pathway for rotation into value and cash-flow durability without requiring a recession.
Approach
Constructed a three-layer regime validation framework (relative leadership ratios, internal tape participation, cross-asset guardrails), analyzed all 11 GICS sectors with individual recommendations and confidence levels, and presented two competing forward paths with rules-based indicators, numeric thresholds, and sell triggers to determine which regime the market is selecting in real time.
Key Result
Base case implies S&P 500 year-end 7,200–7,800. The broadening trade is confirmed at Layer 1 (RSP/SPY and VTV/VUG), not yet at Layer 2 (rolling NH-NL near zero). Highest-conviction calls: Materials and Industrials overweight; Consumer Discretionary underweight. Rotation is best sized as a tilt, not an all-in bet.