Value Rotation Gains Momentum as Mega Cap 8 Falters

James Sterling February 16, 2026 5 min read

Summary

A significant shift from growth-oriented investments to value stocks is currently taking place in the market. Value-focused portfolios, particularly those emphasizing dividends, are substantially outperforming major benchmarks such as the S&P 500 and the Nasdaq, with this trend expected to continue well into 2026. Negative momentum indicators continue to plague the S&P 500 index and the broader Technology sector, placing considerable downward pressure on the so-called Mega Cap-8 stocks while the dominance of growth stocks begins to crumble. Stocks in semiconductors and software industries, with NVIDIA and Palantir standing out as pivotal players, are playing a crucial role in determining the overall market trajectory; NVIDIA’s forthcoming earnings report represents a major potential turning point. Year-to-date, sectors like Energy, Basic Materials, and Consumer Defensive have taken the lead with impressive gains, underscoring the importance of active portfolio management and strategic sector rotations to achieve superior risk-adjusted returns. All long-term value-oriented portfolios are demonstrating substantial outperformance against major indices heading into the new year, particularly when investors align their strategies with precise Momentum Gauge signals for optimal timing and results.

Introduction

The fundamental purpose of forecasting in financial markets is not to pinpoint exact future events with precision, but rather to equip investors with the essential insights required to make informed and impactful decisions right now in the present moment, as aptly noted by Paul Saffo.

Timing plays an absolutely critical role in investment success, and its importance cannot be overstated when navigating volatile market conditions such as those we are witnessing today.

Quick Insights

How long could this rotation toward value stocks continue, and which key signals should investors keep a close eye on for guidance?

While the exact duration of this value rotation remains unpredictable due to the inherent uncertainties of market dynamics, it is reasonable to expect value stocks to maintain their outperformance as long as the momentum gauges for the S&P 500 and the Technology sector continue to display negative readings. Investors would be wise to closely monitor momentum trends across various sectors alongside capital flows into and out of the Mega Cap-8 group of stocks to gauge the sustainability of this shift.

What lies ahead for the semiconductor sector, and how might NVIDIA influence the wider market landscape?

The upcoming earnings release and forward guidance from NVIDIA, scheduled for February 25th, will serve as a critical juncture for the market. Should NVIDIA’s performance signal a broader exodus from growth stocks into value alternatives, it could precipitate a sharp decline reminiscent of the significant S&P 500 downturn experienced in 2022, amplifying the ongoing rotation.

Which specific portfolios and sectors are leading the pack right now, and how should investors adjust their positions accordingly?

Portfolios centered on dividends, those employing the Piotroski-Graham value selection methodology, and strategies based on CFO insider trading activity are currently at the forefront of performance. Meanwhile, the Energy sector, Basic Materials, and Consumer Defensive sectors have posted double-digit returns year-to-date. To capitalize on the prevailing rotation, investors should prioritize allocations in these high-performing areas while maintaining flexibility for further adjustments based on emerging signals.

Major Value Rotation Underway

The financial markets are undergoing a pronounced rotation away from high-flying growth stocks, particularly those in the Mega Cap-8 category, toward undervalued opportunities in traditional value sectors. This shift is evidenced by the stark underperformance of mega-cap technology leaders compared to the surging gains in more defensive and cyclical industries. Year-to-date figures reveal that Energy has climbed over 15%, Basic Materials nearly 12%, and Consumer Defensive stocks around 10%, while the Nasdaq Composite has struggled to maintain positive territory amid weakening momentum.

Mega Cap-8 Under Pressure

The Mega Cap-8 stocks—comprising the largest technology behemoths that have driven market gains for years—are now facing sustained selling pressure. Relative strength lines for these giants have decisively broken below key support levels, signaling the end of their multi-year leadership phase. This breakdown coincides with deteriorating breadth in the S&P 500, where advancing issues are increasingly outnumbered by decliners, particularly in growth-heavy segments.

Semiconductors and Software in Focus

Within the semiconductor space, NVIDIA remains the linchpin whose performance could dictate the pace of the rotation. As the poster child for AI-driven growth, any earnings disappointment or cautious guidance could accelerate capital flight from tech into value havens. Similarly, Palantir’s lofty valuations are under scrutiny, with its momentum stalling as investors reassess the sustainability of explosive software growth narratives.

Semiconductor sector momentum turning negative after prolonged rally.
NVIDIA earnings on February 25th as primary market catalyst.
Palantir showing early signs of breakdown in relative strength.

Leading Sectors and Portfolio Strategies

Investors leveraging disciplined value and dividend strategies are reaping the rewards of this rotation. Portfolios constructed using time-tested approaches like Piotroski high scores and Graham value criteria have surged ahead of passive indices. Active management, informed by sector momentum gauges, has proven indispensable for capturing these outperformance opportunities while mitigating downside risks.

Energy sector: +15.2% YTD, driven by stable demand and favorable geopolitics.
Basic Materials: +11.8% YTD, benefiting from commodity price resilience.
Consumer Defensive: +10.4% YTD, attracting flows amid economic uncertainty.

Long-term value portfolios, when timed with proprietary Momentum Gauge signals, have consistently delivered double-digit annualized returns, outpacing the S&P 500 in every year of operation. This track record underscores the power of combining fundamental value selection with technical timing for superior results.

Market Breadth and Momentum Signals

Market breadth indicators paint a concerning picture for growth leadership. The percentage of S&P 500 stocks trading above their 50-day moving averages has plummeted, while value sectors show expanding participation. Technology sector momentum gauges remain firmly in negative territory, contrasting sharply with bullish readings in Energy and Materials.

This divergence suggests the rotation has significant room to run, particularly if upcoming catalysts like NVIDIA’s earnings disappoint relative to sky-high expectations. Investors positioned in high-conviction value portfolios stand to benefit most from this structural shift.

Strategic Positioning Recommendations

For those seeking to navigate this environment effectively, focus on sectors exhibiting both strong year-to-date performance and positive momentum inflection points. Dividend aristocrats within Consumer Defensive provide defensive yield, while Energy producers offer cyclical upside with attractive free cash flow yields. Basic Materials firms with robust balance sheets are poised for further gains amid supply constraints.

Avoid chasing laggard growth names until momentum confirms a reversal. Instead, utilize relative strength rotation strategies to systematically shift capital toward emerging leaders. This disciplined approach has historically maximized returns while controlling drawdowns during transitional market phases.