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Hardware, Hikes, and Small Caps: The 2026 Great Rotation · The SPY Trader

• 0:00
  Good morning everyone and welcome to Spy Trader .
• 0:03
  I am your host , Barnaby Bullmarket , and I am so glad you could join me on this historic morning .
• 0:09
  It is 6 am on Saturday , July 4th , 2026 , in the Pacific time zone .
• 0:16
  Happy 250th Birthday to the United States !
• 0:20
  While the country celebrates this monumental Semiquincentennial , the U.S.
• 0:24
  stock market is closed for the day .
• 0:27
  This gives us a great chance to breathe and look at the fascinating trends we saw as the first half of the year wrapped up .
• 0:34
  It has been a wild ride with the markets reaching near alltime highs , but the internal mechanics of the market are shifting in a way every trader needs to understand .
• 0:44
  Let's dive into the numbers .
• 0:45
  The S&P 500 , which we follow through the SPY , finished the shortened week on July 2nd at 7,483.24 .
• 0:56
  This capped off a stellar first half of 2026 with total returns of about 10.1 percent .
• 1:02
  While that sounds like smooth sailing , we are currently witnessing a Great Rotation .
• 1:07
  The Nasdaq100 , or QQQ , was up nearly 20 percent in the first half , but we saw a 4 percent pullback in June .
• 1:16
  Investors are starting to pull money out of the Magnificent Seven to fund bets on smaller companies and domestic manufacturing .
• 1:25
  In fact , tech giants Microsoft and Meta saw a 2 trillion dollar value reversal in June alone as investors started questioning the immediate return on investment for all that AI spending .
• 1:37
  Speaking of AI , the hype has shifted from software to hardware .
• 1:41
  We are calling it the Hardware Pivot .
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  The Technology Select Sector SPDR Fund , known as XLK , was the top performer of the first half , up over 29 percent .
• 1:53
  This growth was led by semiconductor and memory stocks rather than the big software names .
• 1:59
  For example , Micron Technology is up over 300 percent yeartodate , and Intel has surged 257 percent as domestic chip fabrication is finally hitting full scale .
• 2:12
  We are also seeing a massive boost in the consumer sector thanks to the Summer of 2026 Pulse .
• 2:19
  With the FIFA World Cup kicking off on June 11th combined with the 250th anniversary celebrations , hospitality and beverage stocks are soaring .
• 2:29
  Morgan Stanley reports that World Cuprelated ad revenue has already topped 500 million dollars .
• 2:36
  In cities like Philadelphia , which is hosting both World Cup matches and 250th events , the economic impact is expected to reach 2.5 billion dollars .
• 2:49
  We can see this in realtime with payment processors like Shift4 reporting record transaction volumes at sports venues and fan zones .
• 2:57
  On the macro side , things are getting a bit spicy .
• 3:01
  Our new Federal Reserve Chair , Kevin Warsh , has taken a hawkish pivot .
• 3:06
  After some rate cuts last year , the Fed has paused at a 3.75 percent benchmark rate .
• 3:14
  However , with inflation reaccelerating to 4.1 percent in May , the market is now pricing in a potential rate hike for September .
• 3:22
  This has put a lot of pressure on the bond market , specifically the iShares 20 plus Year Treasury Bond ETF , or TLT , as yields continue to rise .
• 3:33
  So , what is the game plan for your portfolio ?
• 3:36
  First , I recommend overweighting SmallCap Value .
• 3:40
  You can do this through the iShares Russell 2000 ETF , ticker IWM , or the Vanguard Total Stock Market ETF , VTI .
• 3:50
  Smallcaps actually have a doubledigit lead over the S&P 500 so far this year because they are more agile in this new Fed environment .
• 3:59
  Second , keep targeting AI infrastructure and hardware .
• 4:03
  While big tech software took a hit in June , the physical infrastructure is still booming .
• 4:09
  Stocks like Micron or Applied Materials , AMAT , are the ones providing the memory and networking required for the next leg of the AI cycle .
• 4:17
  Third , look for inflationresistant sectors to hedge your bets .
• 4:22
  With inflation at 4.1 percent , traditional defensive plays like the Vanguard Real Estate ETF , VNQ , or the Materials Select Sector SPDR , XLB , are finally starting to beat the S&P 500 average for the first time in three years .
• 4:40
  Finally , consider some selective international exposure .
• 4:44
  While U.S.
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  Exceptionalism is the big theme , the World Cup reminds us how interconnected we are .
• 4:50
  The Vanguard FTSE Emerging Markets ETF , or VWO , is looking attractive as overseas valuations become more competitive against a very strong U.S.
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  dollar .
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  To sum it up , the easy money in the megacap tech names has likely been made for 2026 .
• 5:09
  The real opportunity now lies in the Great Rotation into smallcaps and the hardware boom .
• 5:15
  Enjoy your fireworks and the soccer matches today .
• 5:18
  I am Barnaby Bullmarket , and this has been Spy Trader .
• 5:22
  Happy Fourth of July !