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Key Points:
Market rotation from large tech to small cap and cyclical sectors observedS&P 500 equal weight index outperformed by 2% in JanuaryMarket concentration of the top ten S&P 500 companies dips below 40%2026 seen as a promising period for active stock pickers amid increased dispersion
Anu Ganti from S&P Global highlights a major sentiment shift in global markets, pointing to a potential rotation away from large tech stocks and towards small-cap and cyclical sectors. Ganti observes that while momentum lagged in January, value stocks outpaced growth. The S&P 500 equal weight index, which has a smaller cap bias, outperformed by 2% during January, suggesting that smaller companies may be gaining traction as market leadership broadens. Notably, the number of sectors outperforming the S&P 500 has increased from three to seven, indicating a wider rally beyond the dominant top ten companies, whose market concentration recently dipped below 40%.
Ganti points to historical data where the S&P 500 equal weight index has tended to outperform the traditional cap-weighted index following peaks in concentration. The broadening market and the decline in concentration may provide new opportunities, though Ganti remains cautious, noting the persistent unpredictability due to geopolitical uncertainties, trade tensions, fluctuating rates, and sector sensitivities—especially in commodities like silver and gold.
Looking ahead, Ganti describes 2026 as a potential “year of the stock picker”, highlighting that market dispersion, measured by S&P Global's DSP x index, rose in January. Historically, greater dispersion correlates with better opportunities for active managers, but Ganti urges caution given the challenges in market forecasting and the volatility that characterises the current environment.
