Piper Sandler's Kantrowitz Advocates Value and Cyclical Stock Rotation for 2026"

This analysis examines the investment strategy recommendation from Michael Kantrowitz, Chief Investment Strategist at Piper Sandler, who advised investors on Fox Business’ “Making Money with Charles Payne” to rotate into value and cyclical stocks amid ongoing bull market dynamics. Kantrowitz projects that 2026 will witness a broadening economic recovery driven by lower interest rates, improved housing activity, and manufacturing sector strength, creating conditions favorable for value stocks to outperform growth for the first time since 2021 [1][2][3]. Market data confirms this thesis is already manifesting, with the Russell 2000 gaining 7.13% year-to-date compared to the NASDAQ’s 1.77% decline as of February 11, 2026 [0][4].

The interview with Kantrowitz occurs at a pivotal moment in market cycle positioning, where multiple indicators suggest an emerging shift in market leadership. The year-to-date performance data through February 11, 2026, reveals a pronounced rotation dynamic that substantiates the Piper Sandler strategist’s thesis. The Russell 2000 small-cap index has surged 7.13%, dramatically outperforming all major indices, while the Dow Jones Industrial Average—a value-oriented benchmark—has advanced 4.19% [0]. In contrast, the technology-heavy NASDAQ has declined 1.77%, and the S&P 500 has managed only modest gains of 0.92%, indicating that market breadth is expanding beyond the concentrated leadership of mega-cap technology stocks that characterized much of 2024 and early 2025 [0][4].

This rotation pattern represents what analysts are increasingly calling the “Great Rotation” of 2026. The Russell 2000 achieved a remarkable 15-session winning streak against the S&P 500—the longest such streak since May 1996—demonstrating sustained institutional interest in small-cap value exposure [4]. The small-cap index surged 5.39% in January alone, compared to the S&P 500’s more modest 1.44% gain, suggesting a meaningful shift in capital allocation preferences [4]. The valuation disconnect between small-caps and mega-cap technology stocks has reached significant proportions, with small-caps trading at approximately 31% valuation discount to mega-caps, presenting what value-oriented investors consider an attractive entry point [4].

The sector-level performance snapshot for February 11, 2026, presents a nuanced picture that supports Kantrowitz’s thesis while revealing the episodic nature of sector rotations. Basic Materials advanced 1.77%, Communication Services gained 1.58%, and Healthcare added 0.92%, while Financial Services declined 2.26%, Industrials fell 1.41%, Technology dropped 0.95%, and Consumer Cyclical slipped 0.19% [0]. The somewhat mixed sector performance—particularly Consumer Cyclical’s slight decline despite being a traditionally cyclical sector—suggests that the rotation remains in relatively early stages and may experience continued volatility as the thesis develops [0].

Kantrowitz’s recommendation rests on a foundation of macroeconomic expectations that distinguish 2026 from previous years in the post-pandemic recovery period. The Federal Reserve’s implementation of four rate cuts during the fourth quarter of 2025 has reduced the federal funds rate to the 3.50-3.75% range, creating a more favorable environment for interest-rate-sensitive sectors [5]. Lower borrowing costs disproportionately benefit cyclical and value sectors because these companies typically carry higher debt loads and derive greater proportion of their earnings from economic growth-sensitive activities such as housing construction, industrial production, and consumer durable goods [2][3][5].

The projected earnings growth differential between small-cap and mega-cap technology stocks provides quantitative support for the rotation thesis. Small-cap stocks in the Russell 2000 are projected to deliver approximately 30% earnings growth for 2026, while the top ten mega-cap technology companies in the S&P 500 are expected to achieve approximately 18% earnings growth [5]. This 12-percentage point spread creates a compelling fundamental case for small-cap and value exposure, particularly when combined with the current valuation discount [5]. The expectation of broader economic recovery extending beyond technology sector leadership represents a significant departure from the narrow market concentration that characterized much of the preceding market cycle.

Housing activity expectations represent another pillar of Kantrowitz’s constructive view on cyclical sectors. The residential housing market has historically been highly sensitive to interest rate movements, and the cumulative effect of rate reductions since late 2025 is expected to catalyze improved housing starts and existing home sales [2][3]. Manufacturing sector strength, which has shown signs of recovery in leading indicators, would provide additional support for industrials and materials sectors while reinforcing the broader economic expansion narrative [2].

The iShares Russell 1000 Value ETF (IWD) has delivered returns of 18.84% from September 2024 through February 2026, with the ETF trading at $224.83—substantially above its 200-day moving average of $201.91 [0]. This technical positioning indicates sustained momentum in value strategies and suggests that institutional capital has already begun the rotation that Kantrowitz is recommending [0]. The sustained premium to the 200-day moving average differentiates the current value rally from shorter-term factor rotations that have historically proved ephemeral.

The timing of Kantrowitz’s recommendation is particularly noteworthy given that 2025 marked the fourth consecutive year of growth outperformance since 2021, making the anticipated 2026 value leadership a meaningful regime shift if it materializes [2][3]. Growth dominance during this period was driven by exceptional performance in artificial intelligence-related technology stocks, significant fiscal stimulus, and the relative resilience of digital services consumption during economic uncertainty. The anticipated rotation to value would represent a return to historical norms of sector leadership rotation following extended periods of growth dominance [2].

The convergence of multiple data sources and analytical frameworks strongly supports the rotation thesis, though the early-stage nature of this rotation means investors should anticipate continued volatility. The technical momentum indicators for small-caps and value factors, combined with the fundamental earnings growth expectations and the favorable interest rate environment, create a multi-dimensional case for exposure to these market segments [0][4][5].

The institutional investor behavior patterns evident in the extended small-cap winning streak against large-caps suggest that the rotation has progressed beyond early adopter positioning into more mainstream allocation shifts [4]. This progression typically reduces but does not eliminate the risk of adverse outcomes, as the rotation thesis must still be validated by actual economic data and corporate earnings performance over the coming quarters.

The relative performance divergence between indices with different sector compositions provides insight into how the rotation is manifesting in practice. The Dow Jones’ 4.19% year-to-date gain—significantly exceeding the S&P 500’s 0.92%—reflects the index’s greater exposure to financial services, healthcare, and consumer staples relative to technology concentration [0]. This relative performance pattern offers a practical expression of the value rotation without requiring specific stock selection.

The current market structure reflects several years of concentration risk in mega-cap technology, which has created both opportunity and risk for value-oriented strategies. The 31% valuation discount for small-caps relative to mega-caps represents one end of a historical range, though valuation disparities of this magnitude have historically preceded extended periods of relative outperformance for the undervalued segment [4]. However, past performance patterns do not guarantee future results, and the durability of any rotation depends on the actual realization of economic and earnings expectations.

The Federal Reserve’s policy trajectory remains a critical variable for the rotation thesis. While current expectations incorporate four completed rate cuts, the path forward depends on incoming economic data, particularly inflation metrics and labor market conditions [5]. Any indication that the Federal Reserve may pause or reverse its easing cycle could complicate the cyclical sector thesis, as lower rates provide crucial support for housing, industrial capital investment, and consumer credit-dependent spending.

The rotation thesis faces several categories of risk that warrant ongoing monitoring. The most significant risk involves the interest rate path, as the Federal Reserve’s policy decisions remain data-dependent [5]. If inflation proves more persistent than currently anticipated, rate cuts could be delayed or reversed, potentially undermining the foundation of the cyclical thesis. The housing recovery and manufacturing sector improvement that Kantrowitz anticipates depend on continued favorable financing conditions [2][3].

Earnings delivery risk represents another substantial concern, particularly given the aggressive 30% projected earnings growth for small-caps [5]. Any significant shortfall in actual earnings reports from cyclical sector companies could reverse the rotation trade quickly, particularly given the compressed valuations that have accompanied the small-cap rally. The historical volatility of small-cap earnings during economic transitions suggests that actual results may diverge from consensus expectations.

The daily sector volatility evident in the February 11 data—with Financial Services declining 2.26% and Industrials falling 1.41%—demonstrates the potential for sharp swings during rotation periods [0]. Investors should anticipate continued volatility as the rotation unfolds, recognizing that such movements are characteristic of regime transitions rather than necessarily indicating fundamental weakness.

The duration of the “Great Rotation” remains uncertain, despite the impressive small-cap winning streak. Historical rotation periods have been episodic, and the current dominance, while the longest since 1996, may not persist throughout 2026 [4]. Market regime changes often experience setbacks and periods of consolidation before establishing sustained new patterns.

The current market environment presents opportunity windows for investors seeking value exposure. The 31% valuation discount for small-caps relative to mega-caps creates an attractive risk-reward scenario for patient capital [4]. The relative performance divergence between value-oriented indices and growth-oriented indices suggests that sector allocation decisions may meaningfully impact portfolio returns in 2026 [0].

The sustained momentum in the iShares Russell 1000 Value ETF, trading well above its 200-day moving average with 18.84% returns over the September 2024 to February 2026 period, indicates that institutional capital has established positions that could provide continued support for value strategies [0].

The analysis synthesizes multiple information sources to present a comprehensive view of the value rotation thesis advocated by Piper Sandler’s Chief Investment Strategist [1][2][3][6]. Michael Kantrowitz recommends investors rotate into value and cyclical stocks based on expectations for broadening economic recovery, lower interest rates, and improving housing and manufacturing activity in 2026 [1][2][3].

Market data as of February 11, 2026, provides empirical support for this thesis, with the Russell 2000 gaining 7.13% year-to-date while the NASDAQ declined 1.77% [0]. Small-caps are projected to deliver approximately 30% earnings growth in 2026 compared to mega-cap technology’s expected 18% growth, creating a fundamental rationale for the rotation [5]. The Russell 2000’s 15-session winning streak against the S&P 500 represents the longest such period since May 1996, while small-caps trade at a 31% valuation discount to mega-caps [4].

Risk factors include interest rate path uncertainty, aggressive small-cap earnings expectations, daily sector volatility, and the uncertain duration of the rotation period [0][5]. The Federal Reserve’s policy trajectory remains the critical variable for cyclical sector performance.

This analysis is based on the Fox Business interview published on February 12, 2026 [1], corroborated by additional reporting from Yahoo Finance [2], AInvest [3], and market data from the Ginlix Analytical Database [0].