Value stocks to steal centre stage from growth stocks in 2026

• Equal-weighted S&P 500 outperformed cap-weighted index in late 2025, signaling broader market participation beyond mega-cap tech
• Macroeconomic tailwinds include potential Fed rate cuts, AI productivity gains spreading to non-tech sectors, and Trump's 'One Big Beautiful Bill Act' tax relief
• Small caps trade at steep discount to large caps, but strategists warn investors must be selective as low valuations alone don't guarantee outperformance

Value Stocks Poised to Outperform Growth in 2026

Value stocks are expected to take center stage from growth stocks in 2026, as investors shift from high-flying tech names to cheaper, less risky assets. The rotation appears already underway, with value indices outperforming growth benchmarks in late 2025.

Key Market Indicators:

• The equal-weighted S&P 500 has surpassed its cap-weighted counterpart, highlighting strength in smaller and mid-sized companies
• December saw financials, industrials, and consumer stocks drive indexes higher, moving beyond concentration in mega-cap tech stocks
• Small caps trade at a steep discount to large caps, though cheapness alone doesn't guarantee outperformance

Supporting Factors:

Market breadth is widening significantly, with Justin Bergner of Gabelli Funds noting "a lot has kind of changed over the last few weeks," favoring rotation into undervalued sectors. This diversification suggests the bull market is no longer dependent on a narrow group of hyperscalers.

Policy Tailwinds:

Several macroeconomic conditions favor value's resurgence:

• Potential Federal Reserve rate cuts in early 2026 could ease borrowing costs for banks and consumer businesses
• AI-driven productivity gains may boost earnings across previously overlooked sectors
• Trump's "One, Big, Beautiful Bill Act" tax relief provides additional support
• Dennis DeBusschere of 22V Research notes stronger productivity growth allows the economy to expand "at 2.5% real without inflation being a problem"

Investment Outlook:

While valuations are attractive, selectivity remains crucial. Phil Segner of Leuthold Grizzly Short Fund cautions that valuations serve "not as a timing tool, but more as a risk profile." Banks and consumer discretionary firms are highlighted as potential beneficiaries, but careful stock selection within these sectors will be critical for capturing genuine opportunities in 2026.