This is what the big rotation on the US stock market looks like
The U.S. economy is showing signs of steady growth as 2025 draws to a close. With inflation easing and job creation remaining strong, investors are now looking ahead to 2026 for potential interest rate cuts. A shift in market performance has also emerged, as sectors like transportation and small businesses outpace the once-dominant tech stocks.
The Federal Reserve Bank of Atlanta estimates the economy grew at an annualised rate of over 3% in the third quarter of 2025. Job growth has stayed robust, particularly in construction and healthcare, supporting consumer confidence. By November, inflation had fallen to 2.7% year-over-year, raising expectations for lower borrowing costs in 2026.
Since late 2025, a clear market rotation has taken place. Transportation firms, banks, and small businesses have surged, while tech stocks—including the so-called 'Magnificent Seven'—have struggled to keep pace. The rally in transportation suggests consumers are spending freely, a positive sign for broader economic health. Earlier in 2025, technology had dominated, with sectors like mobility and advanced manufacturing expanding rapidly. Global IPOs in these areas reached over $34 billion, led by the U.S. and Asia. The data storage market also boomed, growing at 17.2% annually, driven by companies such as IBM, Dell, and Microsoft. Yet by the year’s end, high valuations made tech less appealing compared to financials, small caps, and transportation. Lower interest rates in 2026 could particularly benefit small businesses, which often rely on variable-rate loans. Large corporations, with more stable financing, may see less of an advantage. If a recession were to occur, the focus would shift to minimising losses rather than chasing gains—with tech stocks unlikely to offer strong returns.
The outlook for 2026 hinges on whether the U.S. can sustain growth while inflation continues to ease. A rate-cutting cycle would likely favour sectors like small businesses and transportation over tech. For now, the economy’s resilience and shifting market trends are giving investors new opportunities—and new risks to consider.
