According to Deutsche Bank data, “US equity funds focused on shares outside the tech sector have attracted $62bn of inflows over the past five weeks, eclipsing the $50bn that investors added to such funds in the whole of 2025.” The flows have “boosted a raft of previously out-of-favour sectors,” while “many of last year’s best-performing companies have struggled as Wall Street’s AI boom takes a pause and investors worry about the technology’s impact on the software industry.”
The shake-up intensified recently as “private capital groups were swept up in a sharp sell-off of software stocks triggered by the release of new coding tools by AI start-up” Anthropic.
Andrew Lapthorne, quantitative strategist at Société Générale, said there has been “a major rotation into what we’d call AI-immune sectors such as utilities, food, mining, construction, telecoms.”
Sector Performance Broadens Beyond Technology
Market performance data underscores the breadth of the move. “Eight of the S&P 500’s 11 sectors have risen since the start of January — with only information technology, financial and consumer discretionary stocks falling — while the small-cap” Russell 2000 “is up 6 per cent.”
“Over the past three months, the Russell 2000 has outperformed the tech-focused” Nasdaq 100 “by more than 10 per cent.”
Despite those gains, “the S&P as a whole has struggled to make headway since tech shares peaked in late October, highlighting the tech sector’s outsized importance to the Wall Street benchmark.”
Kevin Gordon, head of macro at Charles Schwab, said: “The broadening out of market performance over the past several months has come at a cost: less stellar index-level gains.”
Information technology has been the worst-performing sector since October
Industrial and Consumer Stocks Rally
Individual companies have reflected the rotation. “Tractor company” Deere & Company “and construction groups” TopBuild “and” Comfort Systems USA “have all gained more than 20 per cent since the start of January and are trading at record highs.”
In contrast, “software groups” Salesforce, AppLovin “and” FactSet “are among the 10 worst-performing S&P 500 stocks this year.”
“Energy and materials stocks have surged,” while analysts at Bank of America “note that consumer staples have had their best start to the year in more than a quarter of a century.” Meanwhile, Walmart “market value last week surged above $1tn, putting the largest US retail chain in an exclusive club dominated by tech groups.”
Members of Big Tech’s so-called Magnificent Seven have lagged. Amazon, Google “and” Microsoft “all fell sharply last week after unveiling plans to spend hundreds of billions of dollars on AI infrastructure this year.”
“There’s definitely more scrutiny [on Big Tech],” said Seema Shah, chief global strategist at Principal Asset Management. “The valuations are stretched. So now people want to see the return on investment.”
Tech stocks have slipped this year while industrials, energy and staples have gained
Earnings Growth and Economic Momentum Support Rotation
Analysts say “the rotation began in the final quarter of 2025 amid signs of a broadening in earnings growth beyond megacap tech.” That trend has continued into earnings season. “The median growth rate for the S&P 500 companies that have so far reported is almost 10 per cent, a four-year high,” Deutsche Bank said.
Economic data has reinforced the move. “The economy is forecast to grow at a 3.7 per cent annualised rate in the fourth quarter, according to the Atlanta Federal Reserve.” That “rapid pace of growth has boosted the allure of stocks in the transport, metals and mining sectors that typically fare well during periods of economic expansion,” according to Max Kettner, chief multi-asset strategist at HSBC.
