Here's what might turn the tide for value stocks and the broader market over growth stocks in 2026

RBC Capital's Lori Calvasina suggests that investor unease around AI and Big Tech could drive a rotation towards value stocks and the broader market in 2026. Despite the Russell 1000 Growth Index outperforming the Russell 1000 Value Index in 2025, Calvasina believes value stocks need an earnings push to advance. Concerns about market concentration in AI and megacap tech stocks are growing among investors, potentially favoring value stocks and the broader market.

By Barbara Kollmeyer RBC Capital says investor unease around AI and Big Tech could drive more rotation AI stocks may see competition from value stocks and the broader markets next year, RBC Capital said. Value stocks and the rest of the stock market excluding megacap tech companies, which have made gains against the dominant growth factor at times this year, could be ready for more advances in 2026 but will need an earnings push. That's according to Lori Calvasina, RBC Capital's head of U.S. equity strategy, who expects the top 10 tech stocks to continue "to keep fighting back until earnings growth dynamics shift more clearly in favor of the value trade or the broader market." The year thus far has seen the Russell 1000 Growth Index RLG gain more than 18%, while the Russell 1000 Value Index RLV has risen 13%. "While 2025 is poised to go down as another year of leadership for growth and top 10 market-cap names, there have also been a few powerful outperformance trades by value and the broader market this year, including one to start the year and another that's taken hold over the past few weeks," Calvasina wrote in the bank's outlook published on Monday. Calvasina notes that a year ago, as some of her colleagues were calling for that rotation in 2025, she expected the tussle between growth and value, and between the top 10 market-cap names and the rest of the market, to persist a bit longer. But the strategist said the value trade and broader-market names have issues similar to those of the growth names. "When we look at the valuations of value and the broader market, excluding the top market names relative to their own history (independent of growth and the top market cap names), we find that they also look expensive, not quite as bad, but not entirely different from what we're seeing in growth and the top market-cap names in terms of their proximity to recent peaks," she said. One big factor that supports the idea of leadership rotation is investor unease around some of the biggest themes - the artificial-intelligence trade, the "Magnificent Seven" group of megacap tech stocks and market concentration. She said those have been high areas of concern among institutional investors with whom RBC Capital has met in the past few months. "Interestingly, individual investors have also become concerned about the heavy concentration of the stock market in the AI theme," she said, referring to a question asked in the weekly American Association of Individual Investors survey. It found that a third of retail investors view the heavy concentration of those stocks as a major risk. "While we are not in the AI bubble camp, we don't think these fears are unfounded," Calvasina said, adding that they are concerned that play is starting to get ahead of itself. "We've also seen better trends in flows for value funds than growth funds in U.S. equity funds flows data recently. In our mind, this gives an edge to value and the broader market over growth and Mag 7 as we head into the new year," said the strategist, who has set a 7,750 performance target for the S&P 500 SPX in 12 months, though in the future that will be on a rolling basis. -Barbara Kollmeyer This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal. (END) Dow Jones Newswires 12-01-25 1040ET