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Cyclical Stocks Set to Lead US Market Rally
23 Dec, 2025
Summary
- Financials, industrials, and consumer products expected to lead US equities.
- Cheaper oil and cooling inflation point to accelerated US economic growth.
- Cyclical stocks have outperformed defensive stocks in recent weeks.
US equities are gearing up for a strong performance in 2026, with a notable shift towards cyclical sectors. Investors are positioning for an economic upswing anticipated due to falling oil prices and moderating inflation, which could prompt Federal Reserve rate cuts. Financials, industrials, and non-essential consumer product companies are expected to spearhead market gains.
This strategic rotation is already underway, with cyclical stocks showing a significant uptick over the past month, outpacing the broader market and defensive stocks. Analysts highlight that this trend signals increasing confidence in economic expansion. Pro-cyclical trades are predicted to offer sustained benefits, extending beyond short-term gains.
While the outlook for cyclical stocks appears robust, potential challenges include an economy overheating, which could delay or reverse expected interest rate cuts. Despite this, the Federal Reserve's revised GDP growth forecast and market pricing for rate cuts suggest a supportive environment for businesses sensitive to economic activity.
