A long-time chartmaster says stocks could disappoint for months — but 6 less-loved investments still have significant upside
- US stocks are testing all-time highs, but a veteran strategist says to stay on guard.
- David Keller believes the market rally could stagnate if large-cap growth stocks fade.
- Here’s a six-part investing strategy to follow during this long-awaited market shift.
Investors should prepare their portfolios for a major market rotation, a long-time strategist says.
After several choppy weeks, US stocks seem to have found their footing in 2025. The S&P 500 stagnated from early December to mid-January instead of enjoying its customary Santa rally, though an impressive 4.4% rebound since January 10 has the index flirting with record highs.
However, David Keller of Sierra Alpha Research isn’t convinced that stocks are off to the races. In fact, the veteran technical strategist suspects this latest move higher could be a false start.
The consensus on Wall Street is that the S&P 500 will log another double-digit gain this year, based on strategists’ median price target of 6,600. Many market participants see continued economic growth and impending tax cuts and deregulation under President Donald Trump.
If all goes right, Keller believes such a gain is possible — potentially even in the coming weeks, in a best-case scenario. But he thinks it’s much more likely that US stocks stagnate as the mega-cap growth stocks that led the market for years finally run out of steam.
“Unfortunately, upside’s going to be limited for stocks because of, most likely, a leadership rotation from growth to value,” Keller said in a recent interview.
A hiccup for the so-called Magnificent Seven stocks could cause the market to cough up gains, given that those tech giants account for a third of the S&P 500, Goldman Sachs has said, and about a quarter of the index’s earnings growth, according to UBS strategist David Lefkowitz.
Goldman Sachs
“I would argue that those stocks have rallied a lot because of expectations about where we’re at today,” Keller said of large caps. “The challenge is going to be, how can you justify even higher valuations through the course of this year? And I think that’s a tough thing to justify.”
Time to pivot
Although a rotation from mega-cap growth stocks to smaller, value-oriented equities may be painful for unprepared investors, Keller thinks it would be best for the market in the long term.
Broader rallies are healthier and more sustainable, so Keller keeps a close eye on market breadth. The percentage of stocks trading above their medium-term averages dropped sharply during the latest market pullback, but has rebounded in this mid-January reversal.
Better participation from smaller stocks with a value tilt suggests that the market shift the strategy chief expects may already be underway.
“What’s most encouraging out of what I’m seeing is a serious resurgence in value sectors,” Keller said. “Industrials, financials have been doing well really since earnings season kicked off, and now you’re seeing other value sectors do well.”
Large growth companies have dominated for years but may take a backseat due to their expensive valuations and a tougher backdrop marked by higher-for-longer interest rates and a stronger US dollar, which weighs on the profits of multinational firms.
“If you think about a stronger-dollar environment — which certainly has been the trend since last September and seems to be the case — that’s not a good environment for growth stocks; it’s not a good environment for large caps,” Keller said.
Smaller firms are usually less affected by currency fluctuations, though elevated rates could be a risk since they tend to have more floating-rate debt than their large-cap peers. However, Keller thinks strong economic growth means the group can grab the baton from large caps anyway.
“It’s really more of a small-cap type of environment, which means the Russell 2000 maybe starts to take a leadership role in a way we haven’t seen in quite some time.”
6 ways to capitalize on the market rotation
Besides small caps, which trade at a substantial discount to large caps, Keller is excited about value-heavy parts of the market, like financials, industrials, materials, and infrastructure stocks, like companies in the Global X US Infrastructure Development ETF (PAVE).
Economically sensitive sectors have been the best performers so far this year, and Keller is confident the momentum can continue as investors latch on to a fresh narrative in the new year.
“We’re coming through a phase where the markets have been rewarding AI and emerging technology — those stocks have run so much,” Keller said. “I think it’s an opportunity for a great catch-up trade with some of these value areas that really have potential momentum here with the new administration, too.”
Infrastructure fits that billing, as the chartmaster noted that the industry will benefit from bipartisan support for investments in bridges and roads.
“There are a lot of very controversial policy decisions that could come out of the new presidential administration,” Keller said. “This is one that is very much not controversial, which is: upgrade the infrastructure in the US.”