Wall Street Skips Tech and Goes Old School for Growth in 2026

As the calendar turns toward a new year, one message is starting to stand out across Wall Street: the mega-cap technology stocks that have carried this bull market may no longer dominate the next phase of gains.

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Strategists at major firms such as Bank of America and Morgan Stanley are increasingly urging clients to look beyond the market’s biggest names and focus on less crowded areas. Sectors like health care, industrials, and energy are rising to the top of their recommended lists for 2026, while enthusiasm cools for the so-called Magnificent Seven, a group that includes heavyweights such as Nvidia and Amazon.

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For much of the past decade, owning Big Tech felt almost automatic. Strong balance sheets, robust cash flows, and consistent earnings growth made these companies easy long-term bets. That confidence is now being tested.

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Technology stocks have climbed roughly 300% since the current bull market began three years ago, and investors are questioning whether the sector can continue to support rich valuations and massive spending on artificial intelligence. Recent earnings updates from AI leaders Oracle and Broadcom, which fell short of high expectations, have only intensified those doubts.

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These concerns are emerging just as optimism about the broader US economy is building heading into the new year. With growth expectations improving, investors may be more inclined to rotate into lagging segments of the S&P 500 rather than continue piling into mega-cap tech.

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“I’m hearing more about investors trimming exposure to the Magnificent Seven and redeploying that capital elsewhere,” said Craig Johnson, chief market technician at Piper Sandler. “The focus is shifting away from just chasing Microsoft and Amazon and toward a much wider set of opportunities.”

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Recent market action suggests that this rotation is already gaining traction. Since late November, sectors such as auto parts and transportation stocks have outperformed the biggest technology names, signaling a change in leadership beneath the surface.

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There is growing evidence that stretched valuations are starting to cool demand for previously untouchable tech giants. Capital is flowing into cheaper cyclical stocks, small-cap names, and areas more sensitive to economic growth, as investors position for a potential acceleration in activity next year.

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From the market’s recent low on Nov. 20, the Russell 2000, which tracks smaller US companies, has climbed about 11%. Over the same period, a index tracking the Magnificent Seven has posted roughly half that gain. The S&P 500 Equal Weight Index which gives the same importance to smaller firms as it does to giants like Microsoft has also outpaced the traditional, cap-weighted S&P 500 during that stretch.

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Strategas Asset Management favors this equal-weighted approach and expects what it calls a “major sector rotation” into 2026. According to Chairman Jason De Sena Trennert, underperforming groups such as financials and consumer discretionary stocks could take the lead next year. Morgan Stanley’s research team shares a similar outlook, highlighting the likelihood of a broader market advance in its year-ahead forecasts.

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“We still think large technology stocks can perform reasonably well, but they’re likely to lag the new leaders,” said Michael Wilson, Morgan Stanley’s chief US equity strategist and chief investment officer. He pointed specifically to consumer discretionary particularly goods as well as small- and mid-cap stocks as potential winners.

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Wilson, who accurately anticipated the rebound following April’s market selloff, believes the widening market participation reflects an economy that has entered an “early-cycle” phase after bottoming earlier this year. Historically, this environment tends to favor lagging, more cyclical sectors such as financials and industrials. Bank of America’s Michael Hartnett echoed that view, noting that markets appear to be pricing in a “run-it-hot” economic strategy for 2026, with money rotating from Wall Street megacaps into Main Street–focused mid-, small-, and micro-cap stocks.

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Earlier in the week, veteran market watcher Ed Yardeni of Yardeni Research also signaled a shift, effectively recommending an underweight position in Big Tech relative to the broader S&P 500. Yardeni, who had been overweight information technology and communications services since 2010, expects profit growth leadership to change in the years ahead.

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Fundamental trends may support that shift. According to Goldman Sachs, earnings growth for the S&P 493 the index excluding the seven largest companies is expected to accelerate to about 9% in 2026, up from 7% this year. Meanwhile, the earnings contribution from the biggest seven stocks is projected to decline to 46% from roughly 50%.

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Even so, some caution remains. Michael Bailey, director of research at FBB Capital Partners, says investors will want confirmation that the broader market is consistently meeting or exceeding earnings expectations before fully embracing the trade. “If jobs and inflation remain stable and the Federal Reserve continues to ease policy, we could see a strong move in the S&P 493 next year,” he said.

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The Fed reinforced that possibility this week, delivering its third straight interest-rate cut and signaling another reduction could come in 2026. Meanwhile, performance across sectors suggests market leadership is already broadening. Utilities, financials, health care, industrials, energy, and even consumer discretionary stocks are all firmly higher this year, according to Max Kettner, chief cross-asset strategist at HSBC.

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“For me, it’s not a question of choosing tech or everything else,” Kettner said. “It’s about both tech and the other sectors participating. And I think that broader participation has room to continue in the months ahead.”