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Narrow Drawdown?

February 11, 2026

Time to Read: 2 minutes

Equity volatility is rising, but all is not what it seems. The technology sector is weighing on the S&P 500 while value and cyclical stocks lead. A market rotation is underway as many investors begin to favor companies beyond tech.

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Equity market volatility has heated up since late January, causing some to fear a more pronounced sell-off may be underway. However, we examined recent performance and found that mega cap technology stocks, which once held market leadership, are driving the decline. As an example, last week software stocks were hit hard because artificial intelligence improvements caused investors to reconsider the sector's competitive positioning and long-term value. Among all the negative performers in tech, the average stock is down 16%—and these negatively performing tech companies account for 20% of the S&P 500’s weight.

It's not all bad news. Outside of tech, S&P 500 stocks are climbing. Sixty-four percent of those stocks are positive year to date, yielding an average return of 11.4% through February 6. The reason is a market rotation is underway—out of big technology stocks and into cyclical areas such as value stocks. In our view, this trend has legs.

Cyclical stocks tend to be more sensitive to fluctuations in the economy, and right now the U.S. economy is resilient. With market participation and earnings growth broadening beyond big tech, we remind clients of the importance of diversification—across market capitalizations, sectors and even geographies.

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Resilient Through Uncertainty

U.S. policy uncertainty has remained elevated and consumer sentiment has weakened. Even so, the economy has stayed resilient, and because growth has held up better than sentiment and headlines suggest, we continue to forecast 2% U.S. growth in 2026, in line with trend.

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Getting Real in Retail

Despite persistent concerns that sticky inflation would erode purchasing power and drag consumer spending lower, the May retail sales data tells a different story. Spending is up not just in dollar terms, but in quantity, highlighting continued consumer resilience.

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Higher Inflation, Contained Expectations

Inflation has jumped since the Strait of Hormuz closed, squeezing consumers through higher gas and utility bills and pressuring businesses with higher freight and operating costs. Yet, longer-term inflation expectations remain contained, suggesting this looks more like a temporary energy shock than a lasting inflation upswing.

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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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