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Cyclicals Surge, Tech Falters: Market Realigns in 2026
10 Jan
Summary
- Cyclical sectors like consumer discretionary and materials led market gains.
- Technology and utilities lagged as the S&P 500 hit new all-time highs.
- International stocks, particularly in emerging markets, also showed strength.
The year 2026 has commenced with a notable rotation in the stock market, moving away from the tech-heavy leadership seen in the prior year. This week, cyclical sectors such as consumer discretionary and materials spearheaded market gains, with both experiencing gains exceeding 5% and 4% respectively. This broadening market trend drove the S&P 500 to achieve multiple new intraday all-time highs during the week, with the latest recorded during Friday's trading session.
Market technicians observe rapid factor and sector rotations, noting that the performance of the 'Mag7' tech stocks has been lackluster. Weakness in software and extended valuations in semiconductors suggest potential challenges for the tech sector early in the year. Experts advise against defensive positioning, recommending a focus on the current trend of cyclical leadership and the market's top performers.
This trend extends globally, with international stocks, including those in emerging markets, showing strong performance. The iShares MSCI ACWI ex U.S. ETF, tracking developed and emerging markets excluding the U.S., has risen around 3% year-to-date, building on a significant gain of over 28% in 2025. Analysts suggest that cyclical areas, alongside selective investments in financials, healthcare, and industrials that leverage AI, could continue to perform well throughout the year.
