INSIGHTS

On November 09, 2026

AAM Viewpoints — Microchips and Potato Chips

Few industry sectors have emerged unscathed from the aggressive rotational consolidations that have occurred over the past several months. Whether growth or value oriented, most categories have sustained steep but relatively short-lived declines. Even perceived “safe haven” sectors, such as Consumer Staples and Utilities, fell as uncertainties and emotions prompted excited stock movements. I cannot recall a period in recent market history where there has been such unsettled activity. September and October are historically challenging months for the market with October, in particular, known for its share of dramatic declines. Yet, despite the magnitude of headline challenges on the geopolitical, monetary and economic fronts, the S&P 500 has fallen just 6% from its all-time high set on October 6. While this is an impressive showing, it did mask the frenetic trading since late summer. The peak-to-valley excursions in some sectors tallied in excess of 10%, which was not out of line given the large gains from earlier this year.

A year ago, more market categories emerged as integral participants and leaders than seen in the prior several years. This presented a strong technical foundation for the overall market that has made it substantially less reliant on any one sector. No longer was the market’s trek to higher levels dependent mainly upon a single industry such as Technology. While an argument may be made that the major indies have been long overdue for a sizable retreat, this anticipated correction may have already unfolded in an unexpected manner because of the broad spectrum of sector rotation. Undoubtedly, the unsettled activity in recent months has been disconcerting and ultimately triggered heightened fear as reflected in the CBOE Volatility Index’s (VIX) recent steep ascent to 28. I believe the rotational action to date has effectively addressed price excesses thereby reducing the need for or likelihood of larger declines among the major indices.

Most sectors that have undergone formidable consolidations recently have rebounded from their lows in a technically positive manner and, as yet, there is no evidence of a basic shift in market leadership. There may actually be a broadening of sector participation that could place less focus on aggressive growth categories. This improved balance could be constructive for the longer term by allowing investors to adopt strategically diversified strategies rather than be necessarily concentrated in a certain theme. The broader roster of market leaders in consumer and cyclical areas seems to imply improving economic activity on the horizon. As an example, railroad stocks have rebounded in a convincing manner from their correction lows and are trending toward their 52-week highs. The rails have been historically regarded as a leading indicator of economic activity since they transport raw materials and industrial goods. Truckers and expedited shippers are exhibiting turnaround potential as well. I would not expect these burgeoning positive trends to be unfolding if the economy was moving headlong toward a prolonged downturn.

Microchips vs. potato chips? While I still believe growth will remain dominant over the next several years, going forward it may be advisable for investors seeking diversification away from Technology to explore Consumer Staples. Stocks in this sector have underperformed for years and are now beginning to exhibit more consistent technical patterns indicative of longer-term recoveries. Separately, small and mid-cap stocks have exhibited impressive elasticity this year, with the S&P 400 Mid-Cap index keeping pace with the S&P 500. I expect the S&P 400 to pull ahead of the S&P 500 during the remainder of the fourth quarter and lead in 2027. Furthermore, Health Care, which has emerged as a top-rung leader in 2026, is technically poised to maintain its rein over the next 18-24 months.

CRN: 2026-1106-13919 R

The opinions and views of this commentary are those of Peroni Portfolio Advisors and are not necessarily that of Advisors Asset Management.