Broader leadership helps keep the market on track

Key takeaways:

• Market leadership is expanding beyond mega-cap technology, supported by broader earnings growth across sectors and industries.
• Rotation beneath the surface suggests investors are seeking opportunities beyond the market's most crowded trades, helping diversify sources of return.

07/16/2026 – A defining characteristic of the stock market in the first half of 2026 has been the shifting nature of volatility. Leadership changed frequently as investors alternated between macroeconomic concerns and company-specific developments, yet the broader market remained remarkably resilient. In many ways, sector rotation acted as the market's shock absorber, helping sustain gains amid uncertainty and supported by strong corporate earnings.

During the first half of the year, 8 of the 11 sectors in the S&P 500^® Index experienced drawdowns of more than 10%, and 5 declined by over 15%. Yet the S&P 500 itself never entered correction territory, with its largest pullback reaching just under 9%. Selling pressure in one area of the market was often offset by buying interest in another, helping suppress Index-level volatility despite significant turbulence beneath the surface.

The broadening of market leadership beyond the mega-cap technology stocks has been one of the most encouraging trends of 2026. While momentum-driven leadership remains a dominant force, earnings growth has become more widespread across sectors, industries, and market capitalizations. Supported by a resilient economy and solid corporate fundamentals, this expansion in earnings strength is evident in the data. Eight of the 11 S&P 500 sectors delivered double-digit earnings growth in the first quarter, and 10 sectors are expected to generate positive year-over-year earnings growth in the second quarter.

Skeptics will point out—correctly—that a disproportionate share of second-quarter earnings growth is expected to come from companies tied to the AI infrastructure buildout. However, focusing solely on the largest contributors to Index-level earnings risks overlooking a more important trend. Earnings revisions, earnings growth, and relative price performance have improved across a broader range of sectors and asset classes. Yes, the technology sector is expected to deliver the strongest revenue growth in the second quarter, but the median stock is projected to generate nearly 9% EPS growth, underscoring the breadth of earnings strength across the market.

The improving fundamental backdrop extends beyond corporate earnings. Recent signs of stabilization in manufacturing activity point to a more supportive environment for cyclical sectors, including industrials, materials, and energy. If that recovery gains momentum in the second half of the year, market leadership could broaden further beyond technology, creating a wider set of opportunities across the equity market.

That said, the path has been anything but smooth. Leadership rotations have occurred in waves, often marked by sharp reversals and short-term positioning-driven volatility. Even so, the broader trend has been toward a market supported by multiple sources of leadership rather than a single dominant theme—even as investors remain focused on the remarkable run in semiconductor stocks.

Despite strong earnings momentum, investors appear to be taking profits in some of the market's most crowded trades and shifting toward areas where valuations, expectations, and positioning are more balanced. The result is a healthier market, with a broader range of sectors and asset classes contributing to returns despite ongoing volatility.