UBS On-Air: Market Moves

Talking Markets Podcast with Nic Janvier of Columbia Threadneedle Investments

16 min

Despite flat benchmark performance in early 2026, the US equity market is experiencing a significant underlying rotation driven by the AI trade and expectations of a cyclical economic upturn. Nick Janvier highlights a reassessment of "quality," shifting investor focus from traditional growth sectors to "old economy" value plays like materials and energy, which are seen as more resilient or beneficial from AI adoption. The outlook for equities remains positive due to strong earnings growth expectations, though external factors like inflation and interest rates pose potential volatility.

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✨ Key Takeaways

1

Underlying Market Rotation: Despite flat S&P 500 and NASDAQ performance in early 2026, there's a "massive rotation" below the surface, driven by the market reassessing AI trade winners and losers and anticipating a cyclical economic upturn.
2

Shifting Definition of "Quality": The market's understanding of "quality" is evolving from predictable growth in software and hyper-scalers to "old economy" sectors like industrials, consumer discretionary, and energy, which are less exposed to AI disruption and can benefit from AI-driven cost efficiencies.
3

Earnings Outlook Positive but Market Focus Elsewhere: Q4 earnings were "as expected," supporting 10-12% large-cap and 15-16% small/mid-cap earnings growth for 2026. However, the market is primarily reacting to the AI trade's impact on future prospects rather than immediate earnings reports.
4

Attractive Value Sectors: "Boring is good again," with old economy/value sectors like materials and energy looking most attractive, as their earning streams appear relatively safe compared to companies targeted by AI disruption.
5

External Factors and Volatility (TIRE): While strong earnings growth is expected to drive markets (the "big E"), external factors like Trade, Inflation, and Rates (TIRE) will create day-to-day volatility throughout 2026.

💬 Notable Quotes

"This has been probably the most eventful flat market that one will ever experience because if you look at the performance from a benchmark level... to look at performance at the benchmark level, and conclude that the year has been boring so far would be the wrong conclusion because it has been an eventful year and what is hidden under the performance of the benchmarks is the massive rotation that is happening below the surface as the market reassesses winners and losers for the AI trade."
"Interestingly as we sit here today, quality may very well mean old economy again. So think old boring industrial companies, think consumer discretionary companies, think energy, which is up 20% year to date."
"Boring is good again. So think, think old economy."