Looking at: Good Signs in Markets

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Don’t Fight the Tide

Last week we were upbeat that the market environment remains resilient and positive, even with the recent geopolitical volatility. This week, we continue to see encouraging signals about cyclicality and broadening strength.

The consensus call continues to be that markets will experience a broadening out in 2026, bringing parts that have been underloved back into the spotlight. Our take has been similar, due to solid growth and earnings expectations, a Federal Reserve that appears at-the-ready to provide liquidity when necessary, and an investing environment that continues to be optimistic about AI.

But are markets demonstrating that same optimism?…To gauge the market mood, let’s look at some classic examples of positive signs.

On a broad index basis, the gap between the market-cap weighted S&P 500 and the equal-weighted S&P 500 has closed considerably this month. This can be seen as confirmation that broadening strength is underway, as other stocks outside of the Mag 7 and mega-cap tech are finding upside.

Pedal to the Metal

Another indicator that markets are feeling constructive? The activity in Industrial Metals commodities and Materials stocks. When economies are in a cyclical expansionary period, we would expect a reaction from these areas, which are closely related because many of the materials stocks are tied to mining.

Year-to-date, both Industrial Metals (copper, aluminum, nickel, zinc, and lead) and the Materials sector have had very strong results, with industrial metals up 6.9% and Materials up 7.3%. The S&P, on the other hand, is only up 1.2%.

Sectors like Industrials and Energy have also come out of the gates strong in 2026.

Value As the Top Dog?

We are hesitant to point this signal out for fear of jinxing it, but value stocks are having a moment. Investors have been waiting for them to beat growth stocks for over 15 years. There have been many false starts, and this may prove to be another one, but very quietly the Russell 1000 Value index has outperformed the Russell 1000 Growth index since markets hit a rough patch in November.

This is yet another indication that other stocks in the universe are finding their way into investors’ portfolios and may continue to do so as the year progresses. This isn’t to say that growth stocks are unattractive; I still believe they are the lifeblood of this market. Consumer and investor sentiment relies on growth stocks to continue producing solid results and to keep AI optimism alive.

But perhaps finally we are in a market environment where diversifying into other sectors can be a fruitful approach. Doing so would quell some investor fears about market concentration, and serve as an encouraging sign that stocks with more attractive valuations can produce attractive results. It’s certainly a theme I’m willing to stick with this year.

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