Market Rotation 2026

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Find out what happening right now and get all the pieces of the puzzle on important data activity before the major news sources break the story and see what are the trends
 

•  18 Jan 2026
 

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Wall Street has opened 2026 with a clear change in leadership, and for many investors this shift feels both unfamiliar and refreshing. After years in which a small group of mega-cap technology giants carried the market almost alone, momentum is now spreading to what many once overlooked. The famous "Magnificent Seven" $NVDA $AAPL $MSFT $GOOGL $AMZN $META and $TSLA are no longer the only engine pulling indices higher. According to Oppenheimer latest weekly review, the market is entering a phase of rotation, where second-tier stocks are stepping into the spotlight.

This matters because market breadth is one of the most important signals investors watch. When gains are concentrated in a few very large names, rallies can feel fragile and dependent on perfect execution from those leaders. In early 2026, however, that picture is changing. Ari Wald, Oppenheimer chief technical strategist, points out that while mega-cap stocks are showing mixed performance and relative weakness versus the broader market, small- and mid-cap stocks are delivering clear outperformance. For traders who worry about crowded trades and stretched valuations, this broader participation is a sign of a healthier market structure.

The data supports this view. The Russell 2000, tracked by many through $IWM, has begun to outperform the S&P 500 for the first time in more than five years and has broken above a long-term resistance level. At the same time, the equal-weighted S&P 500, which reduces the dominance of the largest companies, is holding up better than the traditional cap-weighted index. Together, these signals suggest that capital is no longer flowing to the same familiar names by default but is actively searching for opportunity across the market.

Sector leadership is also changing in a way that reflects shifting investor psychology. Over the past year, financial stocks were a major source of momentum. Now, after a strong rally, that sector is entering a phase of consolidation. Oppenheimer has reduced its stance on financials, moving the XLF ETF from overweight to market weight, and is more cautious on names such as $FIS and $AIG. Within the sector, banks and investment banks remain preferred, but the message is clear: the easy gains may already be behind us.

In contrast, heavy industry and metals mining are showing strength that has not been seen in more than a decade. High-beta stocks in these areas are attracting capital, signaling rising risk appetite among investors. Wald highlights strong momentum in the Metals and Mining space and recommends exposure through ETFs such as $GDX and $XME. In addition, the broader materials sector has been upgraded, with $XLB moving from underweight to market weight. For investors focused on global infrastructure, energy transition, and supply chain resilience, this shift reflects long-term themes that extend well beyond short-term trading.

Technology, despite losing some of its dominance, is far from out of the picture. The sector remains rated overweight, but selectivity is now essential. Wald expresses caution toward parts of the software and cloud space, including companies like $ADBE and $WDAY where growth expectations may already be priced in. Instead, he prefers exposure to semiconductors, where demand remains supported by artificial intelligence, automation, and data-intensive applications. This more nuanced view of technology aligns with a market that is no longer rewarding the entire sector equally.

One of the most interesting elements of this rotation is its impact on small- and mid-cap growth stocks. As part of Oppenheimer updated long and short lists, the firm highlights $FROG, JFrog, which also appears on its list. JFrog is a global leader in DevOps, providing a platform for the automated management and distribution of software updates. In an era where organizations must deploy changes at record speed without sacrificing reliability, this type of infrastructure has become mission-critical.

From a market perspective, JFrog fits perfectly into the second-tier thesis. After a prolonged period of consolidation, the stock is showing signs of a technical breakout, accompanied by improving momentum. For investors who believe that innovation is not limited to trillion-dollar companies, $FROG represents a high-quality growth alternative to slowing mega-cap names. Its medium market capitalization makes it accessible to institutional investors seeking growth without extreme concentration risk.

The message from Wall Street at the start of 2026 is clear. This is no longer a market driven by a single story or a handful of stocks. Instead, leadership is broadening across sectors, sizes, and themes. That creates both opportunity and responsibility. Opportunity, because new areas are emerging where valuations and momentum align. Responsibility, because success now depends more on active selection and understanding where capital is truly flowing.

If this rotation continues, second-tier stocks could define the next phase of the bull market. For those willing to look beyond the familiar giants and dig into the details, this may be the moment to explore where the market next leaders are quietly taking shape.

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