Bifurcated Stock Market Trends for 2026

The new year is starting off with the stock market looking as split as it did last year. The first trading day of 2026 kicked off Friday, with the stock market as bifurcated as it had been in recent months. Though the S&P 500 started the session higher, carried aloft by semiconductors, it has since sputtered and turned lower as the day wore on, with the broad market index last down by 0.1%.

A look inside the S&P 500 shows a major division, with five sectors in the broad market index higher, led by industrials, energy, and utilities, each gaining more than 1%. Conversely, six sectors were lower, with consumer discretionary and communication services leading the decline.

This day’s trading reflects a theme that has solidified over recent months. While the bull market of the last three years has been significantly influenced by artificial intelligence, traders appear more cautious regarding tech stocks moving into 2026, indicating a rotation toward other sectors. The Nasdaq Composite, typically heavy with tech companies, ended the previous year with two consecutive months of losses.

Strategists have been advocating for a broadening out of the stock market, suggesting that companies more sensitive to the economic cycle might start leading the market in 2026 instead of the tech sector. While this shift is perceived as healthy for prolonging the bull market, it may also complicate overall index advancements.

According to the 2026 CNBC Market Strategist Survey, Wall Street anticipates the S&P 500 will increase by roughly 11% in the coming year. While that represents a respectable rise, it falls short when compared to previous years’ advances. Some analysts are expressing cautious sentiments regarding the index’s valuation. Bank of America strategist Savita Subramanian recently noted that the S&P 500 is expensive, suggesting that “risks to the index abound in 2026.” Her year-end target for the S&P 500 at 7,100 is among the most conservative forecasted.

Adam Parker, founder of Trivariate Research, echoed this caution on CNBC’s “Squawk on the Street.” He expressed concern regarding the prevalent optimism among investors, stating, “I think the consensus is pretty bullish. You’re betting on strong earnings growth, and I don’t know if that’s as likely.”

In contrast, during midday trading, chip stocks served as a bright spot, with Nvidia being the only rising name among the Magnificent Seven, increasing by 1.5%. The VanEck Semiconductor ETF experienced nearly a 3% gain, while Micron rallied over 7% and AMD rose more than 3%.