Every few years, markets flirt with the same storyline: investors abandon expensive “growth” shares (often tech) and rotate into cheaper “value” shares—banks, industrials, insurers, and the ultimate “old economy” trade: oil & gas.
In early 2026, that narrative has come roaring back. We’ve seen sharp selling in parts of US tech in recent days, while energy has been one of the standout sectors year-to-date.
But is this truly a great rotation—something durable—or just a bout of market indigestion after a long run of AI-led enthusiasm?
What we’ve just seen: the “big selling” and why it grabbed attention
Over the last few sessions, the moves have been hard to ignore. US equities have with all of the major indices down.
The weakness was led by tech-heavy areas, with some notable single-stock drops (for example, Cisco fell ~12% after commentary around margins/cost pressures).
The sell-off also rippled into global markets, with Asian equities stepping back as “tech jitters” returned ahead of key US inflation data.
Even if you don’t own the specific names that fell, this matters because the modern market has been highly top-heavy: a small number of mega-caps have done a lot of the heavy lifting in index returns, so weakness there can feel like the whole market is cracking—even when plenty of other shares are doing fine.
The rotation case: why value is suddenly fashionable again
The most persuasive “rotation” argument isn’t that tech is finished. It’s that relative valuations and expectations got stretched.
1) Valuation and expectation risk in AI-linked growth
When investors pay up for growth, they’re not just buying earnings—they’re buying a story about future earnings. In early 2026, the story has been dominated by AI infrastructure and the belief that the biggest platforms will turn huge capital spending into even bigger profits.
But markets are beginning to ask harder questions about the return on that spending. One very visible pressure point: major hyperscalers are planning extraordinarily large AI capex budgets (hundreds of billions collectively), which can compress free cash flow in the near term and introduce “prove it” risk.
That dynamic helps explain why you can see steep declines even when earnings “beat” expectations—because the debate shifts from “did you beat this quarter?” to “are you over-investing for uncertain payback?”
2) A broader market wanting “real cash flows” again
Value shares—done properly—tend to be businesses where investors can point to profits today, dividends today, and assets that remain useful even if the world slows down.
Energy is the cleanest example. In early 2026, the S&P 500 energy sector has been among the best performers year-to-date, supported by solid cash generation and renewed investor interest (not solely because of the spot oil price).
In other words, it’s not just “oil went up”. It’s “these businesses are throwing off cash” at a time when some parts of tech are being judged on long-dated promises.
3) Macro uncertainty: inflation prints, rates, and the discount-rate effect
Growth shares are typically more sensitive to interest rates because more of their “value” sits in the distant future. When inflation data is looming and markets are unsure whether rates will fall as quickly as hoped, investors often de-risk the most interest-rate-sensitive parts of the market.
That’s why the market focus snapped to inflation releases and central bank expectations during the latest wobble.
4) Geopolitics and energy security back in the conversation
Energy markets have also been influenced by geopolitical risk headlines, which can change the tone around oil and “energy security” quickly. That doesn’t mean you chase spikes—but it does help explain why investors suddenly stop treating energy as dead money.
Is this a true great rotation—or a temporary reshuffle?
Here’s the tricky part: both things can be true.
- Yes, there are signs of a meaningful style shift: value has outpaced growth for stretches of this cycle, and some market commentary has explicitly highlighted a rotation away from the previous AI-megacap leadership.
- But it’s also true that big rotations often look dramatic in the moment and then fade. Markets are not linear; they’re a constant tug-of-war between narratives.
A useful way to frame it is this:
A) The healthy interpretation: market broadening
If the “rotation” is really just the market broadening—more sectors participating while mega-cap tech cools off—that’s not necessarily bearish. In fact, it can be constructive: indexes become less dependent on a handful of names, and opportunities widen beyond the obvious winners.
You can even see a version of this in the UK. The FTSE 100 has been buoyed by more traditional sectors at points when global tech looked shaky—reminding investors that “old economy” cash flows still matter.
B) The warning interpretation: late-cycle vibes and “dot-com echoes”
The more cautious interpretation is that extreme leadership and stretched expectations can sometimes precede bigger regime shifts. Some commentary has drawn explicit parallels to earlier eras where investors eventually demanded profits and balance-sheet discipline, not just growth narratives.
This doesn’t mean “it’s 2000 again”. But it does mean you should respect valuation risk when one theme becomes the only game in town.
What could keep value and energy working?
If value continues to lead, it’s likely to be because some combination of these stays in place:
- Earnings delivery from cyclicals and cash-generative sectors while parts of tech re-rate.
- Sticky inflation or slower rate cuts than the market previously expected, keeping discount rates higher.
- Capex skepticism around AI: investors rewarding proven monetisation over spending.
- Oil supply/risk headlines that keep energy cash flows robust.
And what could flip it back to growth?
Equally, growth can reassert leadership if:
- Inflation cools convincingly, rate cuts come into view, and long-duration assets benefit.
- AI spending starts to translate into clearer productivity gains and earnings upgrades.
- The sell-off itself creates better entry points (lower multiples, higher prospective returns).
In fact, some institutional outlooks remain constructive on equities and still see AI-related investment underpinning growth sectors—while acknowledging valuation concerns.
What should investors do with this?
If you’re a long-term investor, the biggest risk is treating a rotation headline like a trading signal.
A few practical principles (without turning this into a bullet-point manifesto):
Stay diversified across styles. If you only own growth, you’re effectively making a bet on low rates, flawless execution, and uninterrupted enthusiasm. If you only own value, you risk missing genuine compounding machines and structural winners.
Be suspicious of “old economy = safe.” Value stocks can be cyclical and can be value traps. Oil in particular is sensitive to policy, geopolitics, and the global growth cycle—so position sizing matters.
Rebalance rather than react. If growth has run far ahead in your portfolio over the last couple of years, this may simply be the market offering you a chance to rebalance back to your intended mix—rather than “calling the top.”
Bottom line
Are we seeing a “great rotation”? There are certainly credible signs of rotation and market broadening, with notable tech weakness in recent days and energy/value areas showing strong relative performance.
But whether it becomes a lasting regime shift will depend less on headlines and more on fundamentals: inflation, rates, earnings delivery, and whether AI investment turns into profits quickly enough to justify the valuations investors were willing to pay.
Over the long run, the best response usually isn’t to chase whichever style just “won the week”. It’s to stick to a sensible allocation, rebalance when weightings drift, and remember that markets love a narrative—but portfolios are built on discipline.
Carl Roberts, Director
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Risk warnings
The value of investments and the income derived from them may fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action. All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs practice. Levels and bases of tax relief are subject to change. This blog is based on my own observations and opinions.
