Sector rotation is the lifeblood of every bull market. You’ve heard me say it a million times. And you’re going to keep hearing it, because it never stops being true.
What we’re seeing so far in 2026 is a textbook example.
Last year’s winners are pausing. Last year’s laggards are leading. Energy, one of the worst-performing sectors in 2025, is the top performer so far this year, up 13.5%.
Financials, a standout last year, are now at the bottom of the S&P 500 leaderboard, actually down more than 3% in 2026.
That’s not a problem. That’s how healthy markets behave. Leadership shifts. Capital moves. Trends take turns.
Go back and study any bull market in history and you’ll see the same pattern repeating over and over.
Technology is the perfect example.
Large-cap tech peaked in late October and went on to underperform for months, becoming the weakest sector in the S&P 500 during that stretch.
Since last week, that has started to change. Technology has been the best-performing sector in the index, up more than 5% in just a few days.
That’s rotation. More importantly, that’s former leadership trying to reclaim its role.
The question now is whether this is just a bounce, or the start of something much bigger.
When the Leaders Lead
This may be one of the most bullish charts in the market right now.
We’re looking at technology relative to the S&P 500, alongside semiconductors relative to the S&P 500.
Semiconductors just closed at a new all-time high. To be clear, that new high was not just on an absolute basis.
Semiconductors are also at their highest levels ever relative to the S&P 500:
I learned a long time ago that you don’t get sustained strength in technology without semiconductors. They are the engine.
When chips are leading, tech is rarely far behind.
So, if semiconductors are breaking out, how bad can things really be for technology?
The answer is they’re not bad at all. In fact, technology is on the verge of a meaningful comeback.
From a broader perspective, much of tech never broke down. The equally weighted technology index has been making new highs, and small-cap tech continues to push higher.
The weakness has been concentrated in the mega-cap names. And now those stocks are starting to respond.
Semiconductors making new all-time highs, both absolute and relative, is a clear signal that mega-cap technology is likely next in line to make new highs as well.
That’s what leadership reasserting itself looks like.
The Rest of Tech Is Working
To drive the point home, the S&P 500 Equal Weight Technology ETF (RSPT) just made new all-time highs yesterday.
Relative to the S&P 500, it’s right on the doorstep of doing the same:
That matters. A lot.
Technology is the largest weight in the S&P 500, by a wide margin, at more than 35% of the entire index. It accounts for about 52% of the Nasdaq 100.
When tech leads, the indexes don’t struggle.
If the market’s biggest and most influential sector is regaining leadership after months of digestion, that’s a powerful regime shift back in favor of the bulls.
It’s hard to have a bear market when technology is pushing the major indexes to new highs.
We added two stocks to the Divergence model portfolio yesterday. Historically, in bull markets, it pays to be a buyer of stocks, not a net seller.
That will change one day. We’re always watching for potential cracks beneath the surface.
But technology reclaiming leadership is not a crack. It’s confirmation.
This is what bull markets are supposed to look like.
Now let’s see if they can finish the job.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs