Episode summary
Stock Rotation Hits Big Tech as Small Caps Rise
Bloomberg Surveillance
· · Guests: Julian Emanuel
Summary
Julian Emanuel argues the market’s recent rotation out of big technology and into value, small caps, health care, and other laggards is real, but not the end of tech leadership. He says the shift began in late October and November, intensified with earnings disappointment and debt concerns, and then followed the usual January pattern of prior-year laggards outperforming. Even so, he still sees technology regaining leadership because of its share of index earnings and cash-flow growth, and because speculation has faded in recent weeks.
He also says the broader earnings backdrop has been better than expected, with blended S&P 500 revenue growth likely north of 7%, reflecting an unusually resilient economy and a still-strong employment picture. On top of that, he expects 2026 to be supported by stimulus from the “one big beautiful bill” and possibly two or three Fed rate cuts, which should keep corporate cash deployment flowing to shareholders rather than sitting idle for a downturn.
For markets outside the U.S., Emanuel says dollar weakness has helped drive outperformance, but he does not expect a dramatic further burst until the AI trade peaks. His year-end 2026 S&P 500 target is 7750, and he says investors should stay comfortable with elevated valuations so long as the market’s support from productivity, liquidity, and earnings remains intact.
Key takeaways
- Emanuel says the rotation out of technology started in late October and November and broadened into small and mid-cap stocks, health care, and other prior-year laggards.
- He still expects technology to regain leadership because it has the earnings and cash-flow growth that matter most in the index.
- He says blended S&P 500 revenue growth looks set to come in north of 7%, which he sees as evidence of economic resilience.
- Emanuel projects the S&P 500 at 7750 at year-end 2026, helped by stimulus and possibly two or three Fed rate cuts.
- He says rest-of-world outperformance has been aided by a weaker dollar, but a bigger trade rotation likely waits until the AI trade peaks.
Notable quotes
“It's actually stunning, quite frankly, that revenue looks like it's going to come in north of 7% growth blended S&P 500”
“what we would say here is that it is not likely that you're going to have a dramatic rest of the world outperformance kick in until the trade peaks”
“if we get to a point where people are no longer questioning valuations, that's when we're going to start worrying”
How the episode opens
The issue with the start of this season is there was an expectation that it was going to be a strong it's actually incrementally stronger than expected. But the reason the market hasn't gone, you know, streaming through 7000 on the S&P is that after the last several quarters where you had surprises on the order of 6% or so above the baseline expectation, getting you to that double digit number, we thought it would happen again. It is happening again.
But but the underlying message is it sets the table for 2026 very effectively. Julian, starting late October, early November, we start to see a little bit of a rotation in the market. You know, maybe out of some of the tech names into some of the more value, maybe small and mid-cap.
Is that a longer term trend? Is that something we should play in 26? How do you think about that?
Well, from our point of view, it actually started when health care started to recoup the underperformance of the prior year when the government shut down the first time. Okay, I've lost track of the numbers and the government shuts down. And then what you got toward the end of the year was the start of the rotation away from technology because you had some disappointment on earnings and you had concerns about debt.
And then to start January, it's very typical for these areas to outperform the prior year's laggards. In our mind, it is one of those things that in projecting 7750 at year end, 2026 on the S&P 500 technology because of the weighting in the index, the math drives the fact that it should. And in our mind there's enough negative sentiment for the wall of worry to be overcome that it will regain the leadership.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- stock rotation
- big tech vs small caps
- ai disruption
- data-services selloff
- chipmaker outlook
Companies and tickers mentioned
- EVR
- IT
- FDS
- SPGI
- ACN
- PLTR
- AMD
- NVDA
- Evercore ISI
- Anthropic
- Gartner Inc.
- FactSet Research Systems Inc.
- S&P Global Inc.
- Accenture PLC
- Palantir Technologies Inc.
- Advanced Micro Devices Inc.
- Nvidia Corp.
Watch the episode
Watch “Stock Rotation Hits Big Tech as Small Caps Rise” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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