A shift in leadership is taking shape in the U.S. stock market. Here’s where investors can find fresh opportunities.

Market Performance - The Dow Jones Industrial Average (DJIA) increased by 2.9% year-to-date, marking its best performance in the first three days of a calendar year since 2003 [1] - The Invesco S&P 500 Equal Weight ETF (RSP) outperformed the SPDR S&P 500 ETF Trust (SPY), rising 4.8% compared to SPY's 1.5% since October 31 [2] - The S&P 500 index has shown minimal movement since late October, but significant changes are occurring beneath the surface of the U.S. equity market [5] Sector Performance - The S&P 500's information technology sector has declined by 4.2% since October 31, while energy, financials, and materials sectors have increased by 5.4%, 7.2%, and 10.4% respectively [9] - Value stocks in the Russell 1000 index have outperformed growth stocks since October, with the iShares Russell 1000 Value ETF (IWD) gaining 5.2% and the iShares Russell 1000 Growth ETF (IWF) falling by 1.4% [6][7] Economic Outlook - Investors expect the U.S. economy to remain strong in 2026, with expectations of accelerating global economic growth and subdued inflationary pressures [10] - The Federal Reserve is anticipated to cut interest rates a couple of times this year, which could benefit interest-rate-sensitive sectors like small-cap stocks [11] Investment Trends - A "rotation trade" is occurring, with investors shifting focus from technology stocks to other sectors as tech momentum stalls [4] - Analysts predict that smaller firms will see improved profitability in 2026, with small-cap S&P 600 index members expected to experience faster earnings growth than larger peers for the first time since the bull market began [16] Valuation Insights - The S&P 500's price-to-earnings ratio remains 36% higher than that of the equal-weighted version of the index and 49% higher than the S&P 600 small-cap index [23][24] - Despite recent shifts in stock-market leadership, the S&P 500 continues to command a significant premium, indicating a substantial valuation gap that may attract bargain hunters [23][24]