2026's Growth Playbook: Capturing Expanding TAMs Beyond Tech

The market's leadership is shifting, and the setup for 2026 points to a more inclusive growth story. Since early January, Industrials, Materials, Energy, and Consumer Staples have outperformed the S&P 500 by 5.5% or more, a clear rotation that follows a period where industrial, healthcare, and small-cap stocks had already begun to catch up since late October. This isn't just profit-taking on tech; it's a deliberate broadening of the rally. As Oppenheimer's chief investment strategist John Stoltzfus noted, this is a broadening playbook. The core thesis is that the AI-driven earnings expansion is now filtering through a wider swath of the economy, creating scalable growth opportunities beyond the mega-cap tech leaders who dominated the 2025 rally.

The conditions for this shift are in place. After a three-year bull market heavily concentrated in tech, investors are wary of expensive valuations and are seeking diversification. This has created pockets of value and momentum in sectors that have lagged. The equal-weight S&P 500, which treats all stocks equally, has gained over 5% since late October while the standard index rose just 1%, highlighting the underperformance that is now catching up. Strategists see this as a sustainable trend, not a temporary pause. The expectation is that earnings growth will converge across sectors this year, justifying a repositioning into areas that have been overlooked.

For the growth investor, this rotation is the entry point. It signals that the total addressable market for scalable growth is expanding beyond software and semiconductors. Energy, for instance, is being reshaped by surging electricity demand from AI data centers, creating a new growth driver. Real estate and utilities also stand to benefit from a multi-year infrastructure buildout. The playbook is clear: capture the next wave of expansion by positioning for companies and sectors that are now gaining leadership, not just riding the coattails of tech.

Sector Scalability and TAM Expansion

The 2026 growth playbook hinges on identifying sectors where the total addressable market is not just stable, but actively expanding. Communication Services and Industrials are the standout picks here, rated Outperform by Schwab. Their appeal lies in a direct link to the AI investment boom. Communication Services, home to the tech infrastructure and content providers, is poised to benefit from surging data demand. Industrials, meanwhile, stands to gain from a multi-year capital spending cycle, as companies build out physical infrastructure to support AI computing and other growth initiatives. This isn't incremental growth; it's a fundamental expansion of their TAM driven by a secular technological shift.

The search for value and corporate re-leveraging, as highlighted by Goldman Sachs, further supports a rotation into these areas. As the market broadens, investors are looking beyond the most expensive mega-caps. The equal-weight ETF EQL, for instance, automatically rebalances to overweight sectors that have lagged, including Energy and Utilities, which are currently underweight in the cap-weighted S&P 500. Energy's weight of just 2.89% of the benchmark is historically low, signaling a potential for significant market share capture if the sector's new growth drivers take hold. The investment case for energy and utilities has shifted beyond traditional defensive characteristics, with surging electricity demand from AI data centers creating a powerful new growth vector. This rebalancing ensures the portfolio is positioned to benefit from the multi-year infrastructure buildout and the new growth drivers reshaping these sectors. The goal is to balance the proven scalability of tech with the market share capture potential in areas now gaining leadership.

For the growth investor, the setup is clear. The highest-conviction opportunities are in sectors with scalable models that can capture this expanding TAM. Communication Services and Industrials offer that through AI adoption and capital expenditure cycles. At the same time, the extreme underweighting of Energy and Utilities presents a compelling risk/reward for those betting on a multi-year infrastructure buildout. The key theme is to focus on companies within these underweighted sectors that have strong cash flow and growth potential, positioning to benefit from the very re-leveraging and value-seeking trends now underway.

Financial Impact and Portfolio Execution

The rotation into broader market leadership presents a clear trade-off for investors. On one side is the powerful momentum of mega-cap tech, which has driven the market's historic rally. On the other is the growing appeal of sectors with improving fundamentals and a chance to catch up. The data shows the cost of staying fully concentrated. Over the past year, the market-cap-weighted Vanguard S&P 500 ETF (VOO) delivered a 16.88% return, significantly outpacing the equal-weight Invesco S&P 500 Equal Weight ETF (RSP) at 11.10%. This gap underscores the continued dominance of the largest tech names.

Yet the recent performance tells a different story. Since the start of the year, the Russell 2000 index has risen 8% while the S&P 500 is up just over 1%. This divergence highlights the momentum now building in smaller and more cyclical names. The strategy for 2026, therefore, is not to abandon tech's AI leadership but to tilt the portfolio toward the sectors gaining momentum. The equal-weight approach, by design, forces this rebalancing. RSP's more balanced sector mix-where technology makes up 16% of the fund versus 35% in VOO-provides a built-in tilt away from mega-cap concentration and toward industrials, financials, and other underweighted areas.

For the growth investor, the execution is about capturing the next wave of expansion. The playbook is to maintain core exposure to the AI-driven earnings cycle while using strategies that automatically overweight sectors that have lagged. The ALPS Equal Sector Weight ETF (EQL) is a prime example, allocating approximately 9% to each of the 11 S&P 500 sectors, which means it substantially overweights energy and utilities. This rebalancing ensures the portfolio is positioned to benefit from the multi-year infrastructure buildout and the new growth drivers reshaping these sectors. The goal is to balance the proven scalability of tech with the market share capture potential in areas now gaining leadership.

Catalysts, Risks, and What to Watch

The broadening thesis for 2026 is now in motion, but its sustainability hinges on a few forward-looking signals. The primary catalyst to watch is the convergence of earnings growth between tech and other sectors. Strategists expect this convergence, with growth rates to converge between technology and other sectors in 2026. This is the fundamental proof point that the rotation is not a temporary pause but a structural shift. Investors should monitor quarterly reports for signs that profitability is expanding beyond the mega-cap leaders, particularly in the sectors now gaining momentum.

Key beneficiaries to track are industrials and healthcare. Both are rated Outperform by Schwab, seen as prime candidates to capture the expanding TAM from AI-driven capital spending and healthcare innovation. Sustained outperformance in these areas would confirm the rotation is gaining real traction. Similarly, the underweighted energy and utilities sectors, which are now receiving a triple weight in equal-sector strategies, are positioned to benefit from the new growth drivers like surging electricity demand. Their performance will be a direct test of the infrastructure buildout thesis.

The primary risk to this playbook is a re-acceleration of tech-led gains. After a three-year rally, investors are wary of expensive valuations, but a renewed surge in mega-cap tech could pressure the rotation thesis. This would benefit cap-weighted portfolios, which are heavily exposed to the largest names, and could stall the momentum in industrials and small-caps. The recent performance shows the tension: while the Russell 2000 has risen 8% since the start of the year, the S&P 500 is up just over 1%, highlighting the current momentum favoring the broader market. If tech reclaims dominance, that gap could quickly close.

For the growth investor, the setup is about balancing conviction with vigilance. The playbook is to position for the expanding TAM in Communication Services, Industrials, and healthcare, while using strategies that automatically overweight lagging sectors. But the watchlist is clear: earnings convergence, sustained outperformance in rotation beneficiaries, and the resilience of tech valuations. These are the signals that will confirm whether 2026 is truly the year of broadening leadership or a temporary reprieve.