As Money Rotates Out of Megacap Tech, Stock Pickers Hunt in Pumps, Chip Suppliers and Water
The rotation trade showed up in the tape again Tuesday. While the Nasdaq Composite spent the late session down 0.39% and the S&P 500 slipped 0.10%, the Russell 2000 held a 0.45% gain into the final hour, according to TheStreet’s market coverage, extending a pattern in which small caps grind higher on days the megacap complex stalls.
What makes this year’s rotation notable is where the money is landing. Rather than chasing speculative small-cap tech, screens of rotation candidates have highlighted decidedly unglamorous businesses. A Barchart screen of small caps positioned to benefit as investors move out of big tech featured pump manufacturer Gorman-Rupp, semiconductor-equipment supplier Ultra Clean Holdings, oilfield water-management firm Select Water Solutions, security-screening company Evolv Technologies and footwear maker Wolverine World Wide.
The Gorman-Rupp case is emblematic of the genre. Barchart noted the Ohio-based pump maker rose 29% in 2025, carries a 52-year streak of dividend increases and is forecast to grow earnings around 13.6% — hardly explosive, but the kind of steady industrial compounding that looks attractive when the alternative is paying record multiples for megacap AI exposure.
Other names on the screen are outright turnaround bets. Ultra Clean Holdings, which builds subsystems for semiconductor-equipment makers, fell 29% in 2025, yet analysts cited by Barchart forecast earnings growth of 98% and see roughly 30% upside to a $33.33 average price target as chip-tool demand recovers. Select Water Solutions, down more than 20% at the time of the screen, drew a similar 30% projected upside to a $14 target on forecast earnings growth above 25%.
The list also spans both ends of the momentum spectrum. Evolv Technologies, whose AI-powered weapons-screening systems are spreading through stadiums and schools, had already gained more than 80% in 2025 on roughly 25% recurring-revenue growth, per Barchart, while Wolverine World Wide — owner of Merrell and Saucony — was down 14% with analysts forecasting a 29% earnings rebound.
The backdrop for all of this remains the concentration problem at the top of the market. As Columbia Threadneedle noted in a 2026 outlook, technology accounts for more than 34% of S&P 500 market value versus roughly 14% for the small- and mid-cap Russell 2500, while cyclical sectors like industrials and financials are far more heavily represented down-cap. A rotation out of megacap tech, by construction, favors exactly the kind of industrial and infrastructure businesses filling these screens.
None of this guarantees the leadership change sticks. Small caps remain more sensitive to borrowing costs, and with the 10-year Treasury yield above 4.7% ahead of Wednesday’s inflation report, per brokerage Investrade’s morning summary, the macro data will keep setting the rhythm. But for now, the quiet corners of the small-cap market are getting a look they have not enjoyed in years.
