For investors who simply follow the indices, it may look as if equities markets are taking a breather during the early months of 2026. The S&P 500 is essentially flat for the year-to-date, a striking contrast to a wild ride in 2025 that ended with the index up 17.9% to record its third consecutive year of double-digit gains.
Even the Cboe Volatility Index VIX, regarded as Wall Street’s fear gauge, is sitting at relatively subdued levels compared to the anxiety that gripped markets during the Liberation Day sell-off of April 2025. But the calm surface belies the hidden currents beneath. The story of 2026 so far is not one of stability, but of dramatic sectoral divergence.
The difference between the best-performing and worst-performing sectors in the S&P 500 for the year so far is unusually wide, especially outside of market crashes. Sectors that have been mostly unloved for years, including energy, consumer staples and materials, have roared back as investors have shifted into more defensive stocks.
Meanwhile, technology – particularly software, financial services, and consumer discretionaries have tumbled. The S&P 500 Software Index is down more than 19% for the year to date. According to an analysis by Bespoke Investment Group, 117 stocks in the S&P 500 have gained or lost more than 20% so far this year.
Concentration in the Magnificent Seven – the mega-cap technology companies that have dominated index returns in recent years – has eased slightly, declining from around 34.5% of S&P 500 market capitalisation at end-2025 to about 32%. This is a modest shift, but may signal the start of a broader re-rating of large-cap tech valuations.
Several forces appear to be driving the rotation. Anxiety about Artificial Intelligence’s (AI) impact on the software sector has weighed heavily on tech names like Microsoft (a theme we explored last week). At the same time, many investors are questioning the scale of capital being allocated to AI infrastructure and the time horizon for returns. A commodities upcycle is supporting energy and materials stocks as investors hedge against inflation and geopolitical volatility.
Beyond sectoral rotation in the S&P 500, other divergences are changing the investment landscape. Within the US, the economy looks increasingly K-shaped. Higher-income households are thriving while lower-income households face cost-of-living pressures. If these pressures continue to grow, they will affect company earnings and valuations in the quarters to come.
Internationally, the MSCI World Index (Dynasty’s benchmark for global equity portfolios) has outperformed US benchmarks both last year and year to date. The S&P 500 is off to its worst start to a year relative to the MSCI All-Country Index since 1995. This is a notable reversal after years of American exceptionalism in equity returns, with European and emerging market stocks attracting fresh interest from investors.
Even in this context, we would not write off US technology companies or the resilience of the American consumer. The capacity of large-cap tech firms to innovate, generate cash and adapt to competitive disruption is formidable. US household spending, meanwhile, has remained buoyant throughout shocks such as COVID-19, the subsequent inflation, and new tariffs.
Nevertheless, a rebalancing does appear to be underway across sectors and territories as market participants search for opportunities in the “New World Order”. Narratives are shifting with unusual speed. What was consensus just months ago – AI-fuelled tech dominance, US outperformance – is under challenge.
Our house-view global equity portfolio has a core and satellite approach: At the core are various tracking instruments which combined are designed to marginally outperform the MSCI World Index (net after fees), while the heavy lifting is currently taking place in our satellite component with its exposure to gold and emerging markets.
“The index may appear relatively stable – but the magnitude of sector and factor reallocation beneath the surface has been anything but.”
– Scott Rubner, Head of Equity and Equity Derivatives Strategy at Citadel Securities
Global News
- Retail investors are buying software stocks at record levels on Citadel Securities’ platform, even as Wall Street has been marking the sector lower over concerns about AI disruption. Scott Rubner, Citadel’s head of equity and equity derivatives strategy, said on Wednesday that retail demand has surpassed all prior peaks since 2017. The surge in dip-buying contrasts with more cautious institutional positioning and could influence liquidity, pricing dynamics, and investor expectations for tech stocks as risk appetites shift.
- Gold hovered near $5,000 an ounce yesterday as investors weighed rising geopolitical tensions and uncertainty over the Fed’s interest rate path. Trump said the US must strike a “meaningful deal” with Iran within 10 days as tensions ramp up over its nuclear activities. Meanwhile, Fed governor Stephen Miran tempered expectations for deep rate cuts, citing stronger employment and sticky goods inflation.
- The Fed’s minutes from the 27 to 28 January meeting showed officials growing more cautious on rate cuts, with several warning that further hikes may be needed if inflation stays elevated, even as rates were held at 3.5% to 3.75%. While most policymakers said employment risks have eased and some still see scope for cuts if inflation slows, the discussion signalled uncertainty over the outlook and no immediate plans to ease policy, shaping expectations for rates, Treasury yields, and investor confidence.
- International initiatives linked to Trump’s foreign policy are projected to cost US taxpayers billions of dollars, according to a Bloomberg report published on Tuesday. These include US military action in Venezuela that led to the capture of President Nicolás Maduro, as well as continued pressure over Greenland. The spending would add to federal debt rather than being covered by existing defence funds, and it has sparked debate about the impact on long-term fiscal sustainability, budget priorities, and investor confidence in the stability of the US economy.
- The US trade deficit widened in December, closing a volatile year shaped by shifting tariff policy. The goods and services gap reached $70.3 billion, pushing the full-year shortfall to $901.5 billion. Imports rose 3.6%, led by computer accessories and motor vehicles, while exports fell 1.7% on fewer gold shipments. Economists said erratic tariff moves drove choppy data and may limit support for fourth-quarter growth. The annual deficit with China shrank to about $202 billion, the smallest in over two decades, as tariffs reshaped trade flows.
- South Korea’s Kospi stock index has more than doubled over the past year and is attracting growing participation from small retail investors after previously lagging broader market gains. The shift in sentiment follows a strong rally led by technology and semiconductor stocks, which have lifted valuations and driven market momentum. Rising domestic buying interest, alongside strong performance, may support investor confidence in the rally’s durability and strengthen the appeal of Korean equities in global portfolios. (Dynasty has exposure to leading South Asia shares in our house view global equity portfolio.)
- The US is deploying one of its largest Middle East force buildups in decades, including two aircraft carriers, fighter jets, and refuelling tankers, as Trump warned Iran yesterday that it must make a deal regarding its atomic plans or face military consequences. Trump said negotiations were nearing their limit, adding that failure would be “unfortunate”. The posture signals readiness for sustained military options rather than limited strikes. The scale of the deployment echoes pre-Iraq war positioning, sharply raising pressure on Tehran.
- Apple is accelerating development of three new wearable devices as part of a shift toward AI-powered hardware, sources said on Tuesday. The products include smart glasses, a pendant-style device and AirPods with expanded AI features, all built around the Siri digital assistant and linked to the iPhone. The devices rely on integrated camera systems with varying capabilities. Apple shares rose as much as 2.7% on the day.
- Berkshire Hathaway cut its stake in Amazon.com by more than 75% in the fourth quarter of 2025, according to a regulatory filing on Tuesday, while buying about 5.1 million shares in The New York Times Company in a new position worth roughly $352 million. The move marks a return to media investing during Warren Buffett’s final quarter as CEO. Berkshire also trimmed major holdings, including Apple and Bank of America, while increasing stakes in Chevron and Chubb, signalling shifting investment priorities that could shape market views on its capital allocation, sector exposure, and broader equity valuation trends.
- Major US Food and beverage companies are rebranding and reformulating products as GLP-1 obesity drugs reshape consumer demand, with about 20% of US households now including at least one GLP-1 product user and up to $12 billion in potential snack sales at risk over the next decade. Groups such as PepsiCo, Coca-Cola, and General Mills are expanding healthier, protein-focused, and smaller-portion ranges while lifting R&D and capital spending to match lower-calorie diets. The shift is forcing legacy brands to rethink growth strategies and could reshape long-term sales trends and investor expectations across the sector.
- As at Thursday’s close the S&P 500 was 0.4% up for the week.
Local News
- There are also hidden currents in South Africa’s FTSE//JSE All Share Index, that has undergone major structural shifts over the past three decades, moving from being dominated by diversified multinationals to one now led by local banks, gold miners, and large technology-linked stocks such as Naspers/Prosus, while dual-listed multinationals have shrunk from nearly a third of the index to about 7%. Commodities and resources have rebounded to roughly 30% of the index after decades of decline, reflecting changes in global capital flows, economic structure, and regulation. Recent methodological adjustments by the JSE to reduce offshore weighting distortions further highlight how the composition of South Africa’s main equity benchmark has evolved alongside broader economic and investor trends.
- The rand had strengthened to R16.12 against the dollar on Friday, from around R16.30 earlier in the month, as global risk appetite improved after initial concerns over the US Fed Chair nomination eased. Dovish signals on potential US rate cuts reduced demand for the dollar, while the rand also gained against a trade-weighted basket of major currencies. Sentiment toward South Africa has been supported by a sovereign rating upgrade, removal from the FATF greylist, low inflation and interest rates, and progress on structural reforms such as reduced load shedding, helping lift confidence in the economic outlook.
- The International Monetary Fund (IMF) said yesterday that South Africa’s structural reform programme Operation Vulindlela could raise real economic output by up to 9% over the medium term and lift annual growth toward 3% if implementation continues, especially in electricity, logistics, and water sectors, helping reduce unemployment and debt. The IMF highlighted progress in easing long-standing bottlenecks and recommended broader reforms to improve the business environment and governance, noting that stronger macroeconomic stability, including a new 3% inflation target, has supported interest-rate cuts and investor confidence, while modest near-term growth is expected.
- Political analyst Frans Cronje said on Thursday that investors should consider the possibility that businessman Patrice Motsepe may pursue a political career after resigning as African Rainbow Minerals executive chairman. Citing late-2025 Social Research Foundation polling, Cronje noted Motsepe led preferred successors for ANC leadership. He argued that, if Motsepe runs in 2027 and wins, ANC support could recover, potentially enabling a majority or centrist coalition in 2029. Such an outcome, Cronje said, could accelerate reforms, lift investment above 20% of GDP, and raise growth toward 3%.
- Capitec Bank’s market value climbed to a record R542.4 billion, placing it nearly R8 billion ahead of FirstRand at R534.7 billion as of Wednesday. The gain follows a strong rally in Capitec’s shares after a trading update signalled a profit surge for the year to February. The move reshapes the ranking of South Africa’s most valuable banking groups on the JSE, with FirstRand in second place, followed by Absa and then Nedbank. Capitec remains South Africa’s largest bank by customer numbers, with about 25 million clients.
- Glencore CEO Gary Nagle said on Wednesday he expects Eskom to approve a sharply reduced electricity tariff for the group’s ferrochrome smelters by month-end. The miner is seeking a 62c/kWh rate, arguing it is needed for long-term viability and to compete with Chinese producers. An interim 2026 tariff of 87.74c/kWh was granted last month. The outcome could influence other energy-intensive users as the government weighs potential support mechanisms. Glencore has warned that high power costs threaten jobs and investment, noting electricity tariffs have surged more than 900% since 2008.
- BluEnergy Trading, a subsidiary of Blu Label Unlimited, said on Tuesday it has been granted a multi-year energy trading licence by the National Energy Regulator of South Africa. The licence allows BluEnergy to buy and sell electricity, enabling Blu Label to enter the power market. The company plans to connect municipalities with independent producers using Cigicell’s prepaid electricity vending infrastructure, which operates in more than 95 municipalities. BluEnergy said it will focus on expanding its project pipeline.
- As at the time of writing, the rand was 1.1% weaker against the dollar, and the ALSI was 1.6% up for the week.
Sources: Dynasty, Bloomberg, Reuters, Business Day, WSJ, Moneyweb, ITWeb, BusinessTech, The Economist, TechCentral, etc.
