Insights Chart of the Week

A Cyclical Rotation?

January 21, 2026

Time to Read: 2 minutes

Stronger growth expectations are driving a global rotation out of large cap growth stocks. At a time when geopolitical tensions and tariff discussions continue to simmer, we remind investors to stay invested despite the headline noise.

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The Magnificent Seven and large cap growth stocks outperformed the S&P 500 for the majority of 2025, but equity leadership shifted at the end of October. Cyclical stocks — those that are more economically sensitive — lagged large cap growth stocks and shares of mega cap technology companies until November 1, when we first detected a broadening in markets.

It was the beginning of a global rotation out of those growth-oriented and technology businesses into cyclical areas, such as small caps and large cap value stocks. Since November, cyclicals are up 11.8% compared to the negative returns for growth stocks and big tech in the S&P 500.

What changed? Markets are pricing in a stronger global growth outlook despite current events around geopolitics and tariffs. Many factors support improved economic activity, such as increasing capital expenditures, resilient consumer spending, improving productivity, easing financial conditions and solid earnings growth.

Even given these tailwinds, it is often hard to ignore headline noise. Nonetheless, we reiterate one of our core investing principles: don’t get distracted by headlines and stay invested. Over the long run, wealth is built by staying the course, remaining invested and keeping diversified.

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Steady Hiring, Fewer Layoffs

May’s jobs report showed a labor market that is improving, with payroll growth exceeding expectations and layoffs down sharply from last year. Steady hiring and fewer layoffs should continue to support consumer spending and U.S. economic growth.

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A Broader Foundation for Earnings Growth

Although companies benefiting most directly from AI-related capital spending are the main drivers of higher earnings, strength is no longer confined to that group. Earnings across the broader market remain solid and are expected to grow more than 10% this year and next, suggesting market concentration risk is limited.

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Is the Job Market Stabilizing?

After sluggish job growth in 2025, investors are looking for signs that the labor market may be stabilizing. With consumer spending driving 70% of economic activity, an improving labor market is essential to sustaining economic growth.

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Will Markets Remain Resilient?

Global equities have risen an annualized 11% since 2020 despite repeated shocks, as resilient growth and earnings have helped markets recover from periods of volatility. While the U.S.-Iran conflict poses near-term inflation and growth risks, markets remain constructive as earnings expectations continue to improve.

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