Once-forgotten sectors are perking up
The World Cup games that went into extra time were reminders of just how tough it can be for players to keep up their momentum over the long haul.
Likewise, stocks that have been rocketing along for some time may stumble and lose a step. Case in point: The group of equities in the S&P 500 index that has performed the strongest recently is sputtering so far this quarter.
In fact, leadership has shifted away from the market’s highest-momentum stocks, including once-red-hot semiconductor makers and other AI-focused companies. Since the end of June, those stocks have trailed the index’s lowest-momentum shares (software companies and other recently unloved sectors) by 16.6% (see the chart).
That’s a massive reversal from the second quarter, when the highest-momentum stocks outperformed the lowest-momentum shares by 45%, making this the “high mo’s” best relative return in three decades.
One key driver of this rotation in market leadership is investors locking in sizable gains from the second quarter’s highest-flying stocks. What’s more, corporate fundamentals have been strong across multiple sectors, as we saw last week when banks reported surprisingly robust second-quarter earnings.
That strength is prompting investors to look beyond the recent big winners and reallocate assets to overlooked areas of the market with lower valuations. One such group that hasn’t seen a big run-up this year is the hyperscalers and broader Magnificent 7 names, many of which will report their second-quarter earnings this week and could help this rotational shift continue if their results impress investors.
What does all this mean for returns going forward? A few takeaways to consider:
- Ultimately, it’s impossible to predict the timing and magnitude of such shifts, especially when they occur after historic periods of over- or underperformance.
- Profit-taking among big winners is often a sign of good market health. Although rotational shifts can feel abrupt, they often strengthen the market by unwinding crowded trades, such as semiconductors, and broadening leadership across sectors. That reduces reliance on a small group of stocks and makes the market less vulnerable to forced selling.
- This recent swing in market leadership is a great reminder of the importance of staying diversified and not getting overly invested in one particular theme or narrative—which, as this quarter is proving, can change quickly.
Originally published by Horizon Investments
For more news, information, and analysis, visit the ETF Strategist Content Hub.
This commentary is written by Horizon’s asset management team. Past performance is not indicative of future results. Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This report does not attempt to examine all the facts and circumstances that may be relevant to any company, industry, or security mentioned herein. We are not soliciting any action based on this document. It is for the general information of clients of Horizon Investments, LLC (“Horizon”). This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice, or recommendation in this document, clients should consider whether the security in question is suitable for their particular circumstances and, if necessary, seek professional advice. Investors may realize losses on any investments. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. All investing involves the risk of loss.
The S&P 500 Index is a market capitalization-weighted index that measures the performance of 500 leading publicly traded U.S. companies and is widely regarded as a benchmark for the U.S. large-cap equity market. References to indices, or other measures of relative market performance over a specified period of time are provided for informational purposes only. Reference to an index does not imply that any account will achieve returns, volatility or other results similar to that index. The composition of an index may not reflect the manner in which a portfolio is constructed in relation to expected or achieved returns, portfolio guidelines, restrictions, sectors, correlations, concentrations, volatility or tracking error targets, all of which are subject to change. It is not possible to invest directly in an index. Information obtained from third party sources is believed reliable but has not been vetted by the firm or its personnel.
The investments recommended by Horizon are not guaranteed. There can be economic times when all investments are unfavorable and depreciate in value. Clients may lose money. This commentary is based on public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. The opinions expressed herein are our opinions as of the date of this document. These opinions may not be reflected in all of our strategies. We do not intend to and will not endeavor to update the information discussed in this document. No part of this document may be (i) copied, photocopied, or duplicated in any form by any means or (ii) redistributed without Horizon’s prior written consent. Forward-looking statements cannot be guaranteed. Other disclosure information is available at www.horizoninvestments.com.
Horizon Investments is a registered trademark of Horizon Investments, LLC
©2026 Horizon Investments, LLC.
A message from Advisor Perspectives and VettaFi: Discover something new! Click here to register for our upcoming webcasts.
Read more commentaries by Horizon Investments
