April CRU: Growth, Rotation, and a Changing Market

As of the close of trading last Friday, the S&P 500 was essentially unchanged for the year – remarkable performance for a market that has seen 5 of the 8 mega-cap Tech stocks (representing 35% of the market capitalization) trade down on the year; an historic sell-off in Software stocks; concerns about AI disruption disintermediating workers everywhere; a Fed that appears as likely to raise interest rates as cut them; and a global energy crisis with no obvious end in sight.

There’s at least one understandable source of optimism for investors – the profit growth of large US companies. 

One way to define secular (consistent, as opposed to cyclical) growth companies is the “Rule of 10”: sales growth of at least 10% during each of the prior two years and consensus sales growth estimates of at least 10% in the current year and each of the next two years.

Financials, Real Estate and Utilities sectors are typically excluded. The Rule of 10 is not an easy standard to meet, but a record number of stocks currently do.

However, a dynamic basket of such secular growth stocks has underperformed the equal-weight S&P 500 by 27 percentage points during the past six months, one of the worst stretches of underperformance during the past 15 years. Why have investors soured on such consistent performers? In part, expectations for strong economic growth in 2026 led investors to rotate out of secular growth stocks towards cyclical stocks with more upside to the economy. More importantly, many secular growth stocks are in the Software industry, the epicenter of fears about artificial intelligence (AI) disrupting existing business models.

Speaking of AI fears, according to Tom Friedman of the New York Times, April 7, 2026, may be remembered not for the US ceasefire with Iran but rather the limited release of the Claude Mythos AI model by Anthropic. Claude Mythos Preview is a general-purpose AI model that Anthropic says significantly outperforms prior offerings on a range of benchmarks, including for coding and reasoning. Anthropic reported that Mythos found thousands of vulnerabilities during testing (including in every major operating system and major web browser) and even broke out of its isolated “sandbox,” accessed the internet, and sent an email to an engineer supervising the testing.

In Friedman’s view, this is potentially as fundamental and significant a turning point as was the emergence of mutually assured destruction and the need for nuclear nonproliferation. His hope: the US and China work together to protect themselves and the rest of the world. If the US and China agreed on nuclear nonproliferation with respect to Iran, perhaps his vision would feel more realistic.

Disclaimer: The information provided is for educational purposes only and is not intended as investment advice. Past performance does not guarantee future results. Investors should consult with a qualified financial professional before making any investment decisions.