An Important Turning Point in Markets

Felix Wintle

Fund Manager

One of the great misconceptions about investing, in my opinion, is that it’s all about predicting the future. The problem with predictions in the investing world is that it requires two favourable outcomes; 1) the actual prediction needs to be right and 2) the market reaction must go as you anticipate. This is too hard for anyone to do consistently, although it doesn’t stop people from attempting it on a regular basis.

For me, investing is more about assessing what is happening now and trying to determine if the prevailing trends and conditions will continue. This is why our investment process combines fundamental work with a macro overlay to assess the market’s cycle, and a technical overlay to ensure we are respecting market trends.

This is why when there are big trend shifts in the market, we really take note. There is one occurring right now in both fundamental and performance terms and that is the change in leadership from the Mag 7 and big cap tech in general to the Russell 2000, which epitomises mid and small caps. The fundamental picture is depicted below, where you can see the rate of change in net income growth for the Russell 2000 is taking off, whilst the same metric for the Mag 7 decelerates.

https://tyndallim.co.uk/wp-content/uploads/2026/01/wk280126-1.png

It is also showing up in the performance, which reveals a surprising reality that the Russell 2000 is outperforming the Mag 7 and the Nasdaq by a long way. At the time of writing, the Russell 2000 is +7%, the Mag 7 is +0.1% and the Nasdaq is 1.7% for the year to date. We believe this divergence is set to continue due to the strong growth in earnings and also because the market has switched to favouring cyclical sectors, like industrials, materials, consumer discretionary and energy. The fact that these sectors are now leading reflect an inflection point in US GDP growth.

The strong economic backdrop for America means that nominal GDP could be north of 5.5% for Q1 2026 annualised, which is a big number. This is why the ‘real economy’ sectors are performing so well, as this is where the positive effects of this growth will be felt.

Whilst there is some negative commentary in the media about America these days, this growth is hard to argue with. Here are 10 other reasons to be bullish on America:

A potentially dovish new Fed Chair, who may cut rates in 2026.
Tax cuts, including no tax on tips or overtime
State and local tax cap increase
100% bonus depreciation
Larger-than-normal tax refunds expected in April
The possibility of CPI inflation continuing its downtrend
Fiscal drag in 2025 is likely to become fiscal boost in 2026
Mortgage costs could follow rates lower, which may mean a recovery in the housing market
The stock market could continue to perform well, benefitting retail investors
Consumer spending could bounce back, if some of these scenarios occur

The outlook for America in 2026 looks very positive in my opinion, and is even more enticing given the generally negative attitude of commentators. We are long early-cycle sectors and stocks, some of which have been out of favour for quite some time and are underweight tech and Mag 7. Our active share is 82.1%.

https://tyndallim.co.uk/wp-content/uploads/2026/01/wk280126-2.png

We strongly believe that a new cycle has begun and have therefore increased our weightings to mid and small caps.

https://tyndallim.co.uk/wp-content/uploads/2026/01/wk280126-3.png

28th January 2026
Read time : 4 mins

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Data source: Bloomberg

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An Important Turning Point in Markets

Felix Wintle

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