If you’ve been watching the stock market closely this year, you may have noticed something interesting. There have been plenty of days where it feels like something is getting crushed. Technology is down. Then energy is down. Then small caps. Then healthcare. Then the Magnificent Seven. Yet you look at the S&P 500 at the end of the day and it’s down 0.2%. Or maybe even up.
That’s because one of the defining characteristics of the stock market in 2026 has been rotation. Investors aren’t necessarily selling stocks. They are selling one group of stocks and buying another. Even as I’m writing this, semiconductor stocks, which have been crushed in recent weeks, had a nice bounce yesterday while the rest of the market mostly sold off. Now today, they are showing signs of selling off while the rest of the market is positive.
One of the Strangest Market Statistics of 2026
Bespoke Investment Group tracks what it calls an “all-or-nothing” day. Basically, it’s a day when almost the entire S&P 500 moves together. Think of the kinds of days we remember from major market panics, when nearly everything is red, or following some huge piece of good news, when nearly everything is green.
We haven’t had one of those days yet this year.
Earlier this month, the S&P 500 had gone more than 150 consecutive trading days without an all-or-nothing day. It was the longest streak in more than 25 years.
I think that tells us something important about this market.
There has been volatility. There has been a lot of uncertainty. There have been pockets of speculation. There have certainly been stocks and sectors that have experienced significant declines. But there hasn’t been much evidence of investors broadly saying, “Get me out of stocks.”
Instead, they seem to be saying, “I don’t want to own that anymore. What should I own instead?”
That’s a very different market.
The Index Can Hide a Lot
The S&P 500 is an average, and averages can hide a lot. Imagine that you had 10 investments. Five went up 3% and five went down 3%. Your portfolio didn’t move much. But that certainly doesn’t mean nothing happened. A lot happened.
That’s increasingly what the stock market has felt like this year. One week technology leads. The next week energy takes over. Recently we’ve seen some of the weakest areas of the market suddenly become some of the strongest, while previous leaders have gone the other direction. The index itself often doesn’t tell you much about what is happening underneath.
That is especially clear when you look at sector returns this year.
Energy is up close to 50%. Technology is up more than 20%. Industrials are up close to 20%. Meanwhile, Communication Services and Consumer Discretionary are slightly negative.
The S&P 500 itself sits somewhere in the middle with a year to date return of about 13%.
One index return. Eleven very different sector experiences underneath it.
This is one reason I think investors can get into trouble watching the market too closely. You can open your phone and see that your technology stocks are getting crushed and conclude that something terrible is happening. Meanwhile, hundreds of other stocks may be going up.
A few days later the rotation reverses, and trying to time these rotations has been a fool’s game.
Rotation and Liquidation Are Not the Same Thing
This is an important reminder on the difference between rotation and liquidation.
Rotation means investors are still willing to own stocks. They are simply changing which stocks they want to own. Sell technology and buy healthcare. Sell growth and buy value. Sell the expensive stocks that have run too far and buy something that hasn’t.
Money is moving around the market. Liquidation looks different. That’s when investors stop caring about the distinction. They don’t want technology. They don’t want banks. They don’t want industries. They don’t want healthcare. They want cash.
Correlations start moving toward one, and everything gets sold together. We haven’t seen much of that in 2026.
And for a market that has dealt with changing interest-rate expectations, geopolitical uncertainty, AI concerns, inflation fears, and plenty of debate about valuations, I actually find that encouraging.
Earnings Are Still Doing the Heavy Lifting
This also gets back to something we’ve talked a lot about with clients this year: stock prices ultimately need earnings.
There are plenty of legitimate arguments that parts of the market are expensive. There are legitimate questions about how much money is being invested in AI. There will inevitably be companies where expectations have gotten ahead of reality. But there is also an important difference between a market rising primarily because investors are willing to pay higher and higher valuations and a market where corporate earnings continue growing into those valuations.
Through the second quarter, S&P 500 earnings growth remained very strong. At the same time, the market’s valuation multiple has actually compressed somewhat this year. In other words, stock prices have risen, but earnings have been doing a lot of the heavy lifting. Investors as a whole, have actually been willing to pay less per dollar of earnings.
That doesn’t eliminate risk. But it makes talk of a bubble less likely, as multiples are compressing and not expanding rapidly like you would see in a typical market bubble environment.
What Would Make Us More Cautious?
Market breadth is one of the things I watch, not because it can tell us what the stock market will do next week. It can’t. But it can tell us something about the character of the market.
If this environment suddenly changed and we started seeing repeated days where 80%, 90%, or more of stocks were falling together, I would pay attention. Especially if that happened alongside deteriorating corporate earnings. That would tell us something different may be happening.
It would suggest investors weren’t simply debating which stocks they wanted to own anymore. They might be debating whether they wanted to own stocks at all.
We’re not there today.
Why Diversification Can Feel Frustrating While It’s Working
I also think this is a good reminder of why diversification can feel frustrating while it’s working.
When technology is soaring, you wonder why you own healthcare. When energy is soaring, you wonder why you own technology. When international stocks are leading, you wonder why you spent the last decade owning them while U.S. stocks dominated.
Then the leadership suddenly changes, and usually before anyone sends you an invitation. A diversified portfolio almost always has something in it that you’re disappointed with. That’s partly the point.
This year has been an unusually good example. There has been a tremendous amount happening underneath the stock market, but instead of one giant wave carrying everything in the same direction, we’ve had money continually moving from one part of the market to another.
A broad bull market continuing over months.
A rotational market over days.
Those two things can exist at the same time.
And sometimes the fact that investors are still willing to move money within the market instead of simply moving money out of the market tells us more than whether the S&P 500 happened to finish green or red that day. For now we believe this indicates the most likely path is the longer term bull market continuing on the back of continued earnings strength.
