Here's what might turn the tide for value stocks and the broader market over growth stocks in 2026

RBC Capital’s Lori Calvasina says investor unease around AI and Big Tech could spur a rotation into value stocks and the broader market ex-megacap tech in 2026, but such a shift will require a meaningful earnings lift to sustain. She expects the top 10 tech names to continue outperforming until earnings growth dynamics clearly favor value or the wider market, highlighting that earnings momentum — not just sentiment — will determine whether value can take the lead.

Analysis

Market structure: An investor rotation away from Big Tech toward value/cyclicals would directly benefit banks (XLF), industrials (XLI), energy (XLE) and small/mid-cap value (IWN/IWS) while pressuring NASDAQ mega-caps (QQQ, XLK). The mechanism is earnings-driven—if 2026 S&P operating EPS ex-megacap grows >6% year/year while mega-cap EPS decelerates, breadth and cap-weight-adjusted indices should outperform concentrated growth indices by 4–8% over 6–12 months.

Risk assessment: Tail risks include a regulatory shock to AI/big tech (e.g., major antitrust action or EU AI law enforcement) or an AI monetization acceleration that re-prices growth higher; both can swing performance ±10–20% inside weeks. Near-term (days–weeks) expect headline-driven volatility around earnings; medium-term (months) the earnings revision differential and 10y yield direction (>25bp moves) are the dominant drivers for rotation.

Trade implications: Tactical long value/financials and short concentrated tech via ETFs or a small basket of mega-caps is the highest-probability trade, sized 2–5% per idea; use 3–9 month option call spreads on XLF/XLI and put spreads on QQQ to shape risk. Entry triggers: start scaling in when S&P equal-weight outperforms cap-weight by >3% over 20 trading days or when 10y steepens >25bp; take profits if relative move >8%.

Contrarian angles: Consensus underestimates the stickiness of passive flows and buybacks that can keep megacaps resilient—rotation may be slower and punctuated, creating multi-month mean-reversion trades. Also watch mid-cap industrials and regional banks for underpriced earnings leverage; an early earnings surprise there could produce asymmetric returns while consensus chases beaten-down tech names.

Key Decisions for Investors

• Establish a 2–3% long position in Vanguard Value ETF (VTV) or iShares Russell 1000 Value (IWD) across 2 tranches (50% now, 50% on a 3–5% pullback); target 9–12 month hold, stop-loss 12%, take-profit at +18–25% or when relative outperformance vs QQQ >8%.
• Initiate a pair trade: long Financials ETF XLF 3% vs short NASDAQ-100 ETF QQQ 2% (net long value tilt). Size to portfolio risk (target portfolio delta ~+1–2%); close or rebalance if XLF/QQQ relative return >8% or if QQQ rallies >12% from entry.
• Use options to shape exposure: buy 6–9 month call spreads on XLI or XLE sized to 1–2% premium (targets 20–40% upside if cyclical earnings surprise) and buy 3–6 month put spreads on QQQ (15–25% OTM) sized to 1% premium as a cost-effective hedge into 2026 earnings season.
• Reduce single-stock concentration in AAPL/MSFT/GOOGL by 5–10% and redeploy to mid-cap industrials (XLI) and energy (XLE) over the next 60 days; reallocation triggers: S&P equal-weight outperformance >3%/20 days or 10y yield rise >25bp which historically favors cyclicals.