The start of a new year is usually a good time to revisit your portfolio, investment plans, and expectations for the coming months. Around this time, many people are trying to pick the big winner for the coming year.
2025 is another year for big tech stocks to really push the envelope S&P 500 Index and Nasdaq 100 Index returns. Technology stocks are the best-performing S&P 500 sector in 2025 and 2023, and the second-best performing sector in 2024. History shows that outperformance of a single sector does not last forever. But what can replace it?
While many investors have undoubtedly enjoyed the bull run in tech and Big Seven stocks, there’s no question that share prices are getting expensive. The S&P 500’s price-to-earnings ratio is 31, a level it’s only reached a few times in history. This doesn’t mean a market crash is imminent, but it could mean there are better opportunities elsewhere in the market.
Image source: Getty Images.
The most likely outcome for the U.S. economy in 2026 is likely to be positive, but slower than what we have seen recently. The annualized GDP growth rate in the third quarter of 2025 was 4.3%, the highest level since the third quarter of 2023. This is also much higher than the average growth rate of 2.5% over the past 30 years.
In order for value stocks to outperform growth stocks, we don’t need a bear market or a recession. We just need growth to slow down. Economic growth is currently above trend, but with manufacturing struggling and job growth stalling, there are signs warning the early stages of a slowdown may have begun.
If this trend continues, I think Vanguard Value ETF(NYSE:VTV) By 2026, the company is likely to do well.
Here are a few reasons why I think this ETF will be a leader in the new year.
As mentioned previously, the lack of breadth in the current market is concerning. Currently, the top 10 holdings in the S&P 500 account for about 40% of the index. The technology industry accounts for nearly 35%. Both numbers are near record highs.
These stocks have been priced to perfection. Much of last year’s gains were driven by optimism about artificial intelligence (AI) and the huge revenue potential from infrastructure development. That buzz is slowly starting to fade, and shareholders are starting to look for the results of all this spending. If investors’ sky-high expectations aren’t met, tech stocks could quickly exit.
Lower interest rates are generally good for all companies, but especially economically sensitive ones, including financial and industrial companies. What are the two largest sectors held by the Vanguard Value ETF? Financial (22.8%) and Industrial (16.2%).
The Fed is likely to cut interest rates at least once or twice in 2026. This will reduce yields at the short end of the curve, but there are still some questions about what will happen at the long end of the yield curve. These yields tend to be more dependent on economic conditions. Currently, economic growth is solid and inflation remains above the Fed’s 2% target.
These two factors suggest that long-term yields are likely to remain elevated for longer. This is particularly helpful for banks, where profit margins are likely to improve. This overall environment could make value-oriented stocks look more attractive.
When the economy is booming, growth tends to lead because investors are often willing to stretch valuations. As growth slows, these valuations typically start shrinking again. If the current above-average growth rates simply return to normal, it would be enough to take some wind out of expensive growth stocks’ sails. Based solely on the price investors are willing to pay for their stocks, value stocks are likely to perform better.
Technology stocks have dominated financial markets over the past three years. But 2026 looks like returns are starting to expand. Rapid growth and high valuations are unsustainable in the long run. That doesn’t mean stocks have to pull back here, but it could create opportunities in previously unpopular and underperforming areas of the market.
The Vanguard Value ETF could be one of the biggest beneficiaries of this shift.
Before you buy shares of Vanguard Index Funds – Vanguard Value ETF, consider the following factors:
this Motley Fool Stock Advisor The analytics team has just identified what they believe is 10 Best Stocks Investors can buy now… and Vanguard Index Funds – Vanguard Value ETF is not one of them. The 10 stocks selected could generate huge returns in the coming years.
consider when Netflix This list was created on December 17, 2004… If you invested $1,000 when we recommended, You will have $482,451!* or when NVIDIA This list was created on April 15, 2005… If you invested $1,000 when we recommended, You will have $1,133,229!*
Now, it’s worth noting stock advisor The total average return is 968% — Outperformed the market compared to the S&P 500’s 197%. Don’t miss the latest top 10 list, available via stock advisorand join an investment community built by individual investors for individual investors.
See 10 stocks »
*Stock Advisor returned on January 12, 2026.
David Dierking has no position in any of the stocks mentioned. The Motley Fool owns and recommends the Vanguard Index Funds-Vanguard Value ETF. The Motley Fool has a disclosure policy.
Prediction: This Vanguard ETF could outperform the S&P 500 in 2026 Originally published by The Motley Fool
