Energy and Industrial Stocks Are the New Market Leaders. Here’s What to Know

Key Takeaways

• Energy is the leading US sector in early 2026, while technology is the worst performer, reversing recent market leadership.
• The gap between the best- and worst-performing sectors is already 24.29 percentage points for the year to date, signaling meaningful early dispersion.
• The early-year shift suggests a rotation toward value-leaning and defensive sectors after a tech-heavy rally in 2023 and 2024.

The rotation of out of technology stocks into energy and other value-leaning sectors which began in late 2025 is continuing. The swings are magnified in part by the same factor that had led the bull market: a highly concentrated stock market.

Energy is the best-performing sector so far in 2026, up 19.92% in the last three months and 19.87% in the year to date, while technology is the worst-performing sector, down 3.78% over the last three months and 4.42% in the year to date. The gap between these sectors is already 24.29 percentage points, reflecting meaningful dispersion even early in the year.

The biggest sector story in 2026 is “definitely the decline in the tech and tech-related sectors, like communication services,” says Morningstar chief multi-asset strategist Dominic Pappalardo. “Tech’s decline represents a stark shift in the trend we’ve seen over the last few years, where those sectors have really led the way up.”

Communication services have also swung sharply in recent years. The sector fell 40.94% in 2022, gained 54.45% in 2023, and rose 33.93% in 2025. It’s down 4.37% so far in 2026.

Energy’s Return to the Top Follows a Volatile Decade

The energy sector has repeatedly swung from leader to laggard over the past decade. The sector fell 33.05% in 2022, then surged 55.23% in 2021 and 62.50% in 2022, before posting more muted returns in 2023 (losing 0.55%), 2024 (gaining 6.70%), and 2025 (gaining 7.61%). Now energy has returned to the top of the leaderboard.

Pappalardo says the year’s early shift in leadership appears driven by investor sentiment rather than fundamentals. Investors may be reassessing expectations tied to artificial-intelligence-driven gains. “There’s a realization that the one-way AI rally we’ve seen just cannot continue indefinitely,” he says.

Sector dispersion has varied dramatically over time. In 2022, the gap between the best and worst sectors was 103.44 percentage points, with energy up 62.50% and communication services down 40.94%. In 2023, the gap narrowed but remained wide at 66.1 points as technology surged while utilities fell.

Pappalardo says technology’s heavy weighting in major indexes may be magnifying sector moves. “Depending on which index you use, the tech sector accounts for about 40% of its market cap,” he explains.

Sector dispersion has been wide in recent years, with the annual gap between the best and the worst sectors hitting 103.44 percentage points in 2022, 66.10 points in 2023, and 32.82 points in 2025. In early 2026, the spread has reached 24.29 points so far.

Now the large dispersion is “related to the market composition, where growth names … hold such a substantial weighting in the indices," Pappalardo says.

Is the 2026 Rotation Here to Stay?

Pappalardo says it’s too early to draw firm conclusions from this year’s gap: “The trend and kind of rank order is very meaningful, but I probably wouldn’t put too much weight on the actual return numbers at this point.”

He adds that it’s still too early to know whether technology stocks will climb back to the top: “I really think we need to get another quarter or two of earnings releases to make that assessment.” The fundamental picture could change if investors see “slightly weaker numbers, or even future-looking guidance or commentary from tech leaders.”

Pappalardo says that “earnings growth has outpaced stock performance” for energy and materials, suggesting their recent strength could reflect a catch-up trade rather than a shift in expectations. “At some point, we would expect to see that gap narrow.”

Pappalardo warns that sector leadership is difficult to forecast from year to year. “Oftentimes you see the leader or lagger completely flip positions and become the very opposite in the following year.”