A shift in stock market leadership, away from technology companies and toward smaller firms, cyclical stocks, and international markets, is underway, according to strategist Jim Paulsen. This transition, observed since late 2025, is occurring even as overall market strength persists, potentially masking the underlying change.
Paulsen, speaking in early February 2026, highlighted the dominance of “new era” large-cap technology stocks throughout the recent bull market. He noted a growing trend indicating this leadership is fading. “We’re still dealing with” market volatility, Paulsen said, but the key development is the emerging leadership shift.
The change comes as economic policy uncertainty and labor market stress are increasing. Recent data suggests that periods of peak uncertainty have historically presented opportunities for long-term investors, though the current situation remains fluid. The conversation, as reported on the Jim Paulsen Demonstrate podcast, similarly spanned equity leadership, artificial intelligence, and productivity.
Paulsen’s observations align with a broader assessment that tech’s outperformance may be waning. He suggests that factors such as Federal Reserve policy, dollar strength, and the shape of the yield curve are influencing broader market participation. The strategist indicated that a “bull within a bull” scenario is possible, differing from previous tech-driven market cycles.
Whereas acknowledging the potential for AI and productivity gains to drive economic growth, Paulsen cautioned that measuring productivity in a service- and technology-driven economy is increasingly difficult. He also pointed to a potential “growth glitch” in the U.S. Economy, which he believes could prompt greater policy support and ultimately contribute to a broader stock market advance.
RBC Wealth Management’s MacKay Weekly Investment Report, dated February 6, 2026, echoed Paulsen’s sentiment regarding the potential for accommodative policy in response to economic slowdowns. The report noted anticipation of GDP growth driven by tax cuts and AI-related productivity gains.
The emerging shift in market leadership has been observed for at least 18 months, according to Paulsen. The implications of this change for portfolio positioning remain a key focus for investors.
