Key Takeaways
- Software stocks have outperformed semiconductors over the past three months, reversing the year-to-date trend.
- Large-cap stocks continue to lead, while US banking and technology stocks show signs of weakening momentum.
- A renewed market warning signal, alongside improving consumer staples performance, raises questions about the sustainability of the current rally.
Is the stock market’s leadership starting to shift?
In the October 21 edition of Markets in Motion, StoneCastle Investment Management’s Bruce Campbell examines changing momentum across US and Canadian equities, highlighting a notable rotation from semiconductor stocks into software.
While semiconductors have significantly outperformed software stocks year to date, the past three months tell a different story. Semiconductor performance has turned negative over that period, while software stocks have gained relative strength.
Campbell’s relative rotation analysis places software in the leading quadrant, with semiconductors moving towards lagging territory. US banking stocks are also weakening, while insurance stocks are beginning to recover.
This article is being disseminated on behalf of StoneCastle Investment Management, a third-party issuer, and is intended for informational purposes only.
Another concern is the continued dominance of large-cap stocks. Mid-cap and small-cap companies have yet to demonstrate the same strength, suggesting market gains remain concentrated.
Across US sectors, energy and healthcare continue to lead, while technology is showing weakening momentum. In Canada, technology and energy remain relatively strong, but consumer staples and discretionary stocks are also improving.
That shift is particularly interesting because Campbell’s proprietary early-warning indicator has triggered again.
Previous signals occurred in 2021, November 2024 and earlier in 2026, although they have not consistently preceded immediate market declines.
Campbell isn’t calling for a market crash. Instead, he suggests investors consider some portfolio ‘lifeboat drills’ as sector leadership changes and potential risks build.
Watch the full video above and tell us your thoughts. Are software stocks taking the lead, or is the broader market starting to lose momentum?