AOR Update: New year, same rotation

Equity markets entered the year with a clear rotation in leadership, as value, small caps and non-US stocks gained ground while mega-cap growth took a pause. This shift is supported by broadening earnings strength and a still-expansionary US backdrop, with improving manufacturing indicators and near-term fiscal tailwinds from larger tax refunds expected to bolster consumer spending. While technology remains an earnings standout, its advantage is narrowing, creating room for SMID caps and the “S&P 493” to close the gap.

Against this backdrop of elevated index concentration at all-time highs, active management has an opportunity to navigate benchmark risks and capture more diversified sources of return. History suggests that periods like today have often favored non-US equities over subsequent years, reinforcing the case for broader global exposure as market leadership continues to widen through 2026.