The direction of the overall stock market in 2021 could be very misleading and could mask a significant shift in underlying market leadership. In other words, the stock market might do well or not, but the potential for a major shift in market leadership could present significant investment opportunities.

The biggest story for 2021 might not be “the market,” but rather a significant shift in market leadership and sector, style, and size performance that is currently unimaginable to many investors. Innovation, disruption, intangible assets, and long time-horizon investing could give way to ugly cyclicals, unknown small caps, downtrodden value, real assets, and investors’ demand for immediate strong earnings growth.

Many have called for this type of rotation for some time and have been repeatedly disappointed. Our time-tested research suggested it was probably premature to have previously expected such a large-scale rotation. However, fundamentals are changing and 2021 is likely to be the year the rotation begins. History suggests such rotations can be powerful and provide considerable investment opportunities for those investors willing to embrace the profits cycle.

Investors who presently tout innovation and disruption as investment themes have to remember secular stories are always interrupted by cycles. Market leadership, outside of true bubbles, always shifts as fundamentals change. The business cycle isn’t dead and relative earnings still do drive equity performance.