Tech led the broader market to strong gains last year, but 2026 is already signaling that such a trend might be over. This week – the first full one of the new year – has shown the broadening trade take flight, as highly cyclical sectors consumer discretionary and materials led the way for the period with a week-to-date gain of more than 5% and more than 4%, respectively. Utilities and information technology were the two laggards, with utilities falling more than 1% and tech flat on the week. The moves higher in consumer discretionary and materials, among others, drove the S & P 500 to reach multiple new intraday all-time highs during the week, with the latest one happening during Friday’s session. “Factor and sector rotations are happening rapidly to start the new year,” Jonathan Krinsky, chief market technician at BTIG, wrote in a Thursday note. “We recently felt Mag7 was due for a tactical bounce after five straight down days, but the results so far are rather lackluster. Part of it is the bifurcation within the group, but that combined with weakness in software, and the fact that semis are quite extended suggests it could be tough sledding for tech to start the year.” Those moves might last from here, at least through the first part of the year, according to Ross Mayfield, investment strategist at Baird. “It’s a long year. We entered last year certainly not anticipating the level of tariffs that would be levied on April 2, so a lot can change, but as of right now, I definitely don’t want to be fighting the trend of cyclical leadership and tax position at the top of the market,” he told CNBC. “Basically, [you] just don’t want to be getting defensive here.” That doesn’t necessarily mean that tech can’t still see momentum this year, he added. In fact, Mayfield thinks cyclical areas of the market as well as tech and the artificial intelligence trade can both work, given that the U.S. economy is going to be “running hot” this year with interest rate cuts from the Federal Reserve, fiscal stimulus and continued enthusiasm for AI. “I think the cyclical trade continues to work,” the strategist said. “We’re seeing it at home and abroad. International stocks have started off the year great, and that’s a much more cyclical sector composition, so I think it continues.” ACWX .SPX YTD mountain ACWX vs. S & P 500, year-to-date The iShares MSCI ACWI ex U.S. ETF (ACWX) – which tracks large- and mid-cap stocks across 22 of 23 developed market countries except for the U.S. as well as 24 emerging markets countries – is up around 3% this year. That’s after a stellar 2025, when it rose more than 28%. The fund has outperformed the S & P 500 in both timeframes. Not just a domestic story Like Mayfield, Anthony Saglimbene of Ameriprise Financial believes cyclical areas of the market can continue to run, saying that economic growth could present an opportunity for them to perform better this year. But when it comes to tech and the AI trade, investors could take a more “selective” approach, he said, turning to industries like financials, health care and industrials that actually utilize AI. “You’re going to see more interest in the diversification of AI across borders,” Saglimbene said, citing South Korea, Taiwan and China as areas of interest. “More industries, more sectors, more regions, I think, can plug into this AI theme. I think that’s what investors are starting to look at, and it’s starting to kind of be reflected in the market.” Saglimbene cautioned, however, that while valuations internationally might be “a little bit more attractive,” he said they’re still elevated relative to their historical performance. “You’re going to have to see fundamentals justify valuations, whether you’re here in the U.S. and Big Tech, or you’re international,” he said. “I think markets and companies have a lot to prove this year.”
