Summary
- Rotation from growth to value is underway, with value and dividend portfolios strongly outperforming the S&P 500 and Nasdaq into 2026.
- Negative momentum signals persist for the S&P 500 and Technology sector, with Mega Cap 8 stocks under pressure and growth leadership breaking down.
- Semiconductors and software, especially NVIDIA and Palantir, are critical to market direction; NVIDIA’s upcoming earnings are a key catalyst.
- Energy, Basic Materials, and Consumer Defensive sectors lead YTD, while active portfolio strategies and sector rotation remain vital for risk-adjusted returns.
- All of our long-term value portfolios are significantly leading the major indices into the new year, especially when following the Momentum Gauge signals for the best results.
Introduction
“The goal of forecasting is not to predict the future, but to tell you what you need to know to take meaningful action in the present” ~ Paul Saffo.
Timing matters, and it matters greatly: I have spent the last 35 years trading, researching, and constructing algorithms to identify and leverage the value across fundamental, technical, and behavioral finance models. Of the ten portfolio models designed for optimal portfolio mixes for members to beat the market at Value & Momentum Breakouts, eight come from enhancing well-tested anomaly research in published financial journals. All the models continue to outperform the S&P 500 in live forward testing here on Seeking Alpha, and again this year.
Rotations and Value
“All intelligent investing is value investing — acquiring more than you are paying for.” ~ Charlie Munger.
As I discussed in my recent podcast with Rena Sherbill, momentum will only get you so far:
Somewhere over the past decades of trading and researching the markets, I discarded the notion of being a pure buy-and-hold investor. People may do well in buy-and-hold approaches, but they invariably have to ride through some major downturns to arrive at good results in the end. Back in the days when I relied on well-known investment firms for advice, I often received more coaching about my patience than any valuable insight about market behavior. Like many of you, my cynicism and curiosity about the financial markets led me to test, experiment, and run studies across thousands of different trading approaches, algorithms, and models. Here’s a 10-minute view of what I have learned over the years.
The thing to consider is that we rarely ever see market leaders from the prior year be market leaders for the coming year. ~ JD Henning, January Podcast
Let’s start with a brief review of the Callan Periodic Table, showing the performance of key indices over the past 20 years. Undoubtedly, there is very little consistency year to year with investment types and sector leadership. So far this year, Gold and Energy are among the top-performing segments, while both the Nasdaq and S&P 500 are negative. We still have yet to see Real Estate sector leadership since 2014.
Mega Cap 8 All Negative as Top Performers Emerge in Value Rotation
Over the past four months, I have been emphasizing a rotation to value for 2026. Our results reflect this rotation with strong gains that we will review in the areas discussed previously:
- First Negative S&P 500 Signals As Mega Cap Tech Breaks Down From October Highs.
- Chasing Bubbles And Riding Value In Another Year Leading The S&P 500.
- Rotations Continue To The Next Rally As Market Anticipates The January Effect.
Eight of the largest growth stocks in the world and in the US market indices are all negative into 2026. While it is reasonably safe to say that all the forecast articles were correct so far, always the question remains: “Ok, so what? Now what will happen next?”
After months of highlighting this likely rotation out of the mega-cap giants, I think we should dive into the two biggest questions that I am being asked now:
- How long will this rotation to value last?
- What do I buy now to get more gains?
