Piper Sandler's 2026 Macro Shift: Why Cyclical Quality Value Outperforms AI-Centric Growth

The investment landscape in 2026 is undergoing a profound realignment, as Piper Sandler's macroeconomic strategy pivots from the AI-driven growth narratives of recent years toward cyclical quality value stocks. This shift reflects a recalibration of market priorities, driven by evolving monetary policy, fiscal tailwinds, and the normalization of economic cycles. By dissecting Piper Sandler's sector rotation playbook and its reliance on the H.O.P.E. framework, we uncover why cyclical value stocks-characterized by strong earnings yields, levered profitability, and alignment with macroeconomic trends-are poised to outperform AI-centric growth in the coming year.

The H.O.P.E. Framework and the Phases of Economic Normalization

Piper Sandler's strategic repositioning is anchored in its proprietary H.O.P.E. framework (Housing, Orders, Profits, and Employment), a tool designed to map the business cycle and identify leading indicators of economic transitions. Historically, this framework has demonstrated its efficacy in predicting downturns by tracking the sequential deterioration of sectors: housing cools first as interest rates rise, followed by orders, profits, and finally employment. For 2026, however, the firm's focus has shifted to the normalization phase, where easing monetary policy and fiscal stimulus are expected to reflate cyclical sectors.

The Federal Reserve's anticipated rate cuts-a continuation of its 2025 easing cycle-create a fertile environment for cyclical value stocks. Lower borrowing costs reduce the discount rate for future cash flows, which disproportionately benefits growth stocks. Yet, Piper Sandler argues that the market has overcorrected in favor of AI-centric growth, particularly the "Magnificent 7" tech giants, which now trade at stretched valuations. In contrast, cyclical value stocks offer a more compelling risk-reward profile.

Sector Rotation: From Crowded Tech to Diversified Cyclicals

Piper Sandler's 2026 sector rotation strategy emphasizes a "repositioning away from crowded mega-cap technology stocks" toward cyclicals, industrials, and smaller-cap stocks. This move is underpinned by several factors:
1. Earnings Revisions and Yields: The firm's "Macro Select" model prioritizes stocks with positive earnings revisions and attractive earnings yields. For example, AT&T, NRG Energy, and Brinker International-selected for their value characteristics- have demonstrated resilience amid shifting macroeconomic conditions.

1. Policy Tailwinds: The anticipated $191 billion in tax relief under the "One Big Beautiful Bill" Act is expected to bolster corporate profits, particularly in financials and infrastructure. Piper Sandler maintains an optimistic outlook for banks and investment banking, citing regulatory relief and lower interest rates as catalysts for margin expansion.
2. Infrastructure as a Bridge to AI: While the firm acknowledges AI's long-term potential, it argues that the physical infrastructure underpinning AI-such as fiber-optic networks and data centers-offers more immediate returns. Companies like Corning and Ciena, which supply critical components for AI expansion, are highlighted as beneficiaries of this "infrastructure phase" of the AI trade.

Why AI-Centric Growth Faces Headwinds

The underperformance of AI-centric growth stocks in 2026 is not a rejection of AI itself but a correction of overvaluation. As Michael Kantrowitz of Piper Sandler notes, the "hype cycle" for AI has reached a plateau, with investors demanding more tangible returns on investment. Moreover, the normalization of interest rates reduces the discounting advantage that growth stocks once enjoyed. Cyclical value stocks, by contrast, thrive in environments where earnings visibility and cash flow generation are prioritized over speculative growth.

Piper Sandler's "Jump, Slump, and Pump" trajectory for 2026 further underscores this dynamic. The year is expected to begin strongly as rate cuts spur economic activity, consolidate mid-year as markets digest policy outcomes, and end robustly as fiscal tailwinds and reflationary forces take hold. This pattern favors stocks with cyclical exposure, as their performance is more directly tied to the business cycle's ups and downs.

Conclusion: A Macro-Driven Rebalance

Piper Sandler's 2026 strategy exemplifies the power of macrocyclic repositioning. By leveraging the H.O.P.E. framework and sector rotation, the firm has identified a mispricing in the market: AI-centric growth stocks are overvalued in a normalization phase, while cyclical value stocks are undervalued relative to their macroeconomic potential. As the Federal Reserve continues its easing cycle and fiscal policy provides a tailwind, investors would be wise to heed this realignment. The coming year may well belong to those who recognize that the most durable returns arise not from chasing the next technological marvel but from aligning with the rhythms of the real economy.