THE DEAN’S LIST: The Great Rotation Begins

Dean’s note: Something interesting happened this week. For the first time in years, the little guys are winning. The Russell 2000 is beating the S&P 500 by the widest margin we've seen in over a decade. Wall Street is calling it the “Great Rotation.” Meanwhile, Trump announced tariffs on eight European countries over Greenland. And TSMC just committed to building a chip empire in Arizona. There's a lot to unpack. Let's dig in.

Last week was supposed to be about bank earnings. And it was - Goldman Sachs and Morgan Stanley both crushed it. But then Trump dropped the Greenland tariff bomb on Saturday, and suddenly Europe is holding emergency meetings.

Here's your calendar:

The big story of the week wasn't any single headline. It was the rotation. For three years, the Magnificent Seven tech stocks carried the market. Now the baton may be slowly passing. Small-cap stocks are having their moment, and it's happening fast. We’ve seen this play out before, only to reverse. I have a feeling this time might be different.

Let me tell you about something that's been building for years and finally snapped this month.

The Russell 2000 - that's the index of smaller American companies - is up more than 8% in 2026. The S&P 500? Up about 1.5%. That's a 6+ percentage point gap in just two weeks. We haven't seen a spread like that since 2009. The Russell 2000 has outperformed the S&P 500 for eleven straight sessions. Eleven.

What's driving this?

First, valuations. The Russell 2000 trades at about 18 times earnings. The S&P 500 is at 26 times. That's a 31% discount. When small caps got this cheap relative to large caps in the past, they tended to outperform for years afterward.

Second and more importantly, rates. Small companies typically carry more floating-rate debt. When the Fed was hiking aggressively, that crushed them. Last time the Fed started to ease and then paused, small caps suffered a fake out. If the Fed continues to cut this year - which I think they will - small caps stand to benefit much more.

Third, industry focus. Small-cap indexes have the largest weightings of the most economically sensitive industries. Industrials, small financials like regional banks, mortgage lenders and REITs give investors the most leverage to marginal changes in economic growth spurred by monetary policy. 

Dean’s note:
I've been talking about market breadth for weeks. When only seven stocks carry the index, it's fragile. When hundreds of stocks participate, it's healthy. This rotation is exactly what a sustainable bull market needs. It doesn't mean tech is dead - it means the rally is broadening. That's good news. My portfolio includes 10% in IWM (Russell 2000 ETF), and I'm happy to see it finally pulling its weight. Don’t forget I also own RSP (Invesco S&P 500 Equal Weight ETF). RSP gives each stock within the S&P 500 an equal weight and an equal impact on returns. It’s outperforming so far this year, but not as much as IWM.

On Thursday, the U.S. and Taiwan signed a trade deal that most people missed because of all the Greenland noise. But this might be the most important economic development of the month.

Taiwan is committing $250 billion in investments in American semiconductors, AI, and energy. TSMC - the company that makes most of the world's advanced chips - is buying more land in Arizona and speeding up construction on a “gigafab cluster” of manufacturing plants.

In exchange, the U.S. cut tariffs on Taiwanese goods from 20% to 15%. Commerce Secretary Howard Lutnick made it clear: Taiwan-based chipmakers that don't build in America could face 100% tariffs. That's the stick. The carrot is exemptions and favorable treatment for companies that invest here.

TSMC reported a 35% jump in quarterly profit and is increasing capital spending to $52-56 billion for 2026 - up from $40 billion last year. When the CEO was asked if he's worried about an AI bubble, he admitted he's “nervous,” but said customer demand looks real.

Dean’s note:
This is how you do trade policy: You give Taiwan a clear incentive to build in America, you protect the chips that run everything from your phone to your car to military equipment, and you do it without starting a shooting war. I'm not saying this administration gets everything right, but this deal is smart. China called it “economic plunder.” I'd call that validation.

And then there's Greenland.

On Saturday, Trump announced 10% tariffs on Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland starting February 1. On June 1, they go to 25%. The tariffs stay “until a Deal is reached for the Complete and Total purchase of Greenland.”

European leaders held an emergency meeting Sunday. The response was swift and unified: “We will not allow ourselves to be blackmailed.” French President Macron is pushing the EU to activate its “Anti-Coercion Instrument” - a legal mechanism designed to respond to economic pressure from non-EU countries. They call it the “trade bazooka.”

The EU-US trade deal from last year? It might be dead. The European Parliament leader said approval is “not possible at this stage.”

Meanwhile, thousands of Greenlanders protested in Nuuk on Friday - about a quarter of the capital's population - carrying signs that said “We are not for sale.”

Dean’s note:
I said last week that I expected this to stay in the saber-rattling category. Well, we're past saber-rattling now. Tariffs are scheduled. Allies are meeting. NATO is strained. This isn't good for transatlantic trade, and it's not good for the dollar's role as the world's reserve currency. Gold keeps climbing for a reason. The silver lining? Markets absorbed this news on Friday and barely moved. That tells me traders think this gets negotiated before February 1. I think they're more right than wrong.

The big banks finished reporting Thursday, and the headlines are clear: 2025 was the year of the dealmaker.

Goldman Sachs crushed expectations. Investment banking fees surged 25% in Q4 as M&A volume globally hit $5.1 trillion for the year - up 42% from the year before. CEO David Solomon has the firm back in its advisory sweet spot.

Morgan Stanley reported an 18% jump in profit. Investment banking revenues rose 47% year-over-year. They ended the year with $9.3 trillion in client assets - a record. Net revenue hit $70.6 billion for the full year, also a record.

Bank of America and Wells Fargo also beat expectations, though their stocks fell anyway because of worries about the credit card rate cap proposal and Fed independence. Sometimes the market punishes you for things that have nothing to do with your earnings.

On the Fed chair front: Trump said Friday he wants to keep Kevin Hassett in his current role as NEC Director, which means former Fed Governor Kevin Warsh is now the frontrunner to replace Powell when his term ends in May.

Dean’s note:
Record revenues. Record assets. M&A is back. The banks are in good shape. The one thing to watch is credit quality - Jamie Dimon has been warning about consumers feeling squeezed. But for now, the numbers say American finance is humming. And I maintain what I said last week: naming a Fed Chair successor and letting them telegraph policy will do more to move rates than any subpoena drama.

Gold is hovering around $4,595 - just off all-time highs. But the real story is silver.

Silver is up over 26% year-to-date. It's trading near $90 an ounce. Multiple analysts are now calling for $100+ silver and $5,000 gold by year-end. One fund manager told CNBC it's “absolutely” possible.

What's driving it? The same things as before: worries about Fed independence, geopolitical chaos, central bank buying, and physical shortages. China has export controls on silver. There's a $10 premium being paid in Shanghai right now compared to Western prices. The metal is literally disappearing from Western markets.

Dean’s note:
I've been calling gold “insurance” in these pages. Well, the insurance is paying out. A 5% position in gold has been one of the best-performing parts of my portfolio. I'm not adding more here - these are crowded trades now - but I'm certainly not rebalancing or selling. When institutions are under stress, hard assets attract money. We're still in that environment.

Markets keep climbing despite all the uncertainty.

I've been in this business a long time. Long enough to remember when small caps used to lead the market. For three years, we've watched the Magnificent Seven drag the indexes higher while most stocks went nowhere. That's changing now.

The Great Rotation is real. It might not last forever - these things are always fragile - but it's a trend worth watching seriously. And it matters because a market with broad participation is healthier than one that depends on seven companies.

At the same time, we're watching tariff wars escalate, alliances fray, and a massacre unfold in Iran. The paradox of this moment is that markets keep climbing despite all the uncertainty. The S&P 500 is up about 21% from a year ago. People who stayed invested look smarter than the doomsayers.

Here's my framework for the week ahead:

The rotation is happening. The breadth is improving. The disciplined investors - the ones who stayed diversified when everyone else chased seven stocks - are being rewarded.

That's exactly how it's supposed to work.

— Dean

P.S.: My 2026 forecast called for small-cap outperformance and broader market participation. Two weeks in, and we're already seeing it. If you haven't read it, here’s the full forecast. And if you're still just in the Nasdaq 100 and the S&P 500, maybe it's time to think about diversification.