The Great Rotation… Confirmed?

Back in February, we asked the question: Is a great rotation underway?

As Q1 2026 closes, the style box tells the story clearly. Large-cap growth, the market's dominant force for years, has led the selloff. Meanwhile, small- and mid-caps, particularly value-oriented stocks in these segments, long overlooked after years of relative underperformance, sit at the top of the return spectrum 2026 YTD.

The rotation we flagged early in the year has materialized.

What's driving it? A confluence of factors: stretched valuations in high-growth tech, geopolitical uncertainty, and a market beginning to reprice risk more broadly. Investors concentrated in the past few years’ winners have felt the impact.

The harder question now: does this rotation continue into Q2?

At V-Square, we've long believed that timing rotations is one of the most difficult things investors can do. What tends to work for investors is disciplined, systematic exposure, with diversified factor tilts and a consistent focus on company quality: strong fundamentals, healthy margins, and sound balance sheets.

In our view, while the style box continuously rotates, quality endures.

Do you think small- and mid-cap value stock performance has more room to run?

Source: S&P Global, Bloomberg, V-Square Quantitative Management LLC. The S&P Index Equity Style Box is comprised of the year to date returns of the S&P 500 Value Index (large-cap value), the S&P 500 Index (large-cap blend), the, the S&P 500 Growth Index (large-cap growth), the S&P 400 Value Index (mid-cap value), the S&P 400 Index (mid-cap blend), the S&P 400 Growth Index (mid-cap growth), the S&P 600 Value Index (small-cap value),  the S&P 600 Index (small-cap blend), and the S&P 600 Growth Index (small-cap growth).