It’s been a banner year for cyclical pockets of the market. Energy, industrials, and materials are among the market’s top-performing sectors in 2026
But the chief investment officer of active investments at ProShares, which manages $114 billion in assets, the impressive run for economically sensitive areas of the market will soon start to fade
de Longis sees a slowdown in economic growth ahead — not a recession, just a more muted pace of growth. That’s because economic expansion over the last year has generally been strong, he said, and it will be difficult to continue to keep pace. In Q2 and Q3 2025, US GDP grew by 3.8% and 4.4%, respectively
Some other signs that growth could be peaking are: 12-month forward earnings revisions approaching historically high levels, and the ISM manufacturing and services survey being on the decline
That doesn’t mean de Longis is bearish on stocks as a whole, but shifts will start to happen under the surface of the broader market, he said. If growth does indeed start to slow, he said investors would likely turn to quality stocks, as they’ll start to place greater emphasis on strong balance sheets, low debt, and a track record of robust earnings
“These normal growth slowdowns are absolutely part of the cycle, and in that environment, equities can continue to do very well,” Alessio de Longis told Business Insider on Monday. “They typically do, and they’re led by quality stocks.”
De Longis got a bit more granular with his views. In terms of sectors with the most overlap with the quality factor, de Longis said to look to information technology
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The sector is heavily concentrated in some of the market’s most formidable juggernauts: Nvidia (NVDA), Apple (AAPL), and Microsoft (MSFT) collectively make up just under 37% of the State Street Technology Select Sector SPDR ETF (XLK). Those three stocks are also the top three holdings in the iShares MSCI USA Quality Factor ETF (QUAL)
Part of de Longis’ preference for the tech sector also ties in with his views on interest rates and inflation. He sees inflation remaining fairly tame alongside energy prices, and that will allow short-end rates to stay put and long-end rates to come down
Right now, market consensus has one or two Federal Reserve rate hikes penciled in; if that scenario doesn’t come to pass, it will be a positive for stocks, he said. And falling long-term rates are typically a boon for long-duration growth stocks, and they’ll allow tech firms to borrow money in the bond market at cheaper rates, boosting their free cash flow levels
On the other side of the portfolio, de Longis said he’d barbell his tech exposure with three traditionally defensive sectors: consumer staples, utilities, and healthcare
These are areas of the market that tend to outperform when economic growth weakens, giving investors a bit of cushion in case of a more severe decline in growth, de Longis said. They also usually outperform in the falling-interest-rate environment he sees, which is associated with a slowing economy
Examples of funds that offer exposure to the trades de Longis mentioned include the JPMorgan US Quality Factor ETF (JQUA), the Vanguard Information Technology ETF (VGT), the iShares U.S. Healthcare ETF (IYH), the Fidelity MSCI Consumer Staples Index ETF (FSTA), and the Utilities Select Sector SPDR Fund (XLU)
