Wall Street's multi-strategy is rising strongly! The trend called "rotation" quietly begins in global stock markets.

In 2025, amidst an unprecedented AI investment frenzy sweeping global stock markets, a rather old-school academic stock trading strategy that has long been dominated by Wall Street investment institutions is once again dominating the market. This strategy involves a diversified stock asset allocation strategy centered around index ETFs, focusing not only on popular tech stocks, but also on diversifying across various market styles, sectors, and integrating bond assets. This diversified strategy focusing on diversification has performed extremely well throughout the year, especially outperforming the "Magnificent Seven" strategy (which only invests in the seven big tech companies in the US stock market) in the fourth quarter. However, in 2025, its shine has once again been completely overshadowed by the AI frenzy. Undoubtedly, in 2025, there are clear signs of market sector rotation from tech stocks to value and cyclical sectors, among others. Therefore, this trend towards diversified stock allocation portfolios has begun to reap strong excess alpha returns in global stock markets, especially since the significant pullback of popular AI tech stocks like Oracle, NVIDIA, and Broadcom starting from November. For 2026, as the market's fear of the AI bubble burst that arose in November becomes more intense, and doubts arise about the irrationality of the AI bubble, including top Wall Street institutions such as Goldman Sachs and Morgan Stanley predicting a continuation of rotation in styles like value, mid-cap, and cyclicals, as well as different industry sectors apart from tech, indicating that stocks beyond popular AI tech stocks may see much higher investment returns for the year. Several Wall Street giants, including Goldman Sachs, Bank of America, Yardeni Research, and Morgan Stanley, have recently pointed out the growing skepticism in the market regarding the high valuations of popular AI tech stocks and whether the massive investments in AI will bring substantial returns. They are steering market attention towards traditional cyclicals like industrial and energy sectors, as well as mid-cap stocks, instead of the highly valued "Magnificent Seven" tech giants like NVIDIA and Amazon. Yardeni Research Founder Ed Yardeni even suggests reducing exposure to the seven big tech giants relative to the rest of the S&P 500 index, marking a shift in stance towards large tech stocks for the first time since 2010. Amidst the AI hype, winners not to be ignored in 2025: Return of Diversification In the midst of the victory chorus surrounding AI, soaring sentiment among retail investors, and a frenzy of cryptocurrency "reversal trading," a quieter trend has quietly emerged in the global stock market in 2025: diversified asset allocation strategies focusing on asset diversification have recorded some of the strongest investment returns in recent years, a success largely overlooked. Firstly, a simple portfolio consisting of half stocks and half bonds achieved double-digit growth, marking the best year since 2019. Multi-asset "quant strategy cocktail," a benchmark return index measuring a mix of commodities, bonds, and global stocks, significantly outperformed the US stock benchmark - the S&P 500 index. Strategies focusing on diversification across various investment styles (such as value, cyclical, and tech) and multiple industry sectors seemed to have the strongest annual performance. A trading open-end index fund by Cambria Investments consisting of 29 ETFs covering global stock markets achieved its best annual performance to date, benefiting from significant overseas market rallies outside the US. The much lower-than-expected US CPI inflation report this week served as a lesson in strategy wisdom. The US CPI inflation data released on Thursday came in far lower than expected, leading to a rare simultaneous rise in stocks and bonds. So-called risk-parity funds recorded strong returns this week, reminding investors that even in a world still intoxicated by the AI frenzy, the market environment still rewards "diversified allocation." However, despite 2025-2026 marking the return of the old-school Wall Street style of diversified investments, 2025 will also be remembered as another year where investors continued to steer clear of these strategies. Funds continued to flock towards concentrated investments in popular AI tech stocks like the Magnificent Seven, as well as themes around cutting-edge technologies like nuclear power and quantum computing, along with "direct risk-hedging tools" like gold and silver. Underneath the surface, the market's "breadth" has been expanding for most of the year, highlighting a shift of funds from popular AI tech stocks to other sectors. Value-focused stock ETFs many of which avoid overweight major tech sectors attracted over $56 billion in funds this year, marking the second-largest annual inflow since 2000. Cambria's Global Value Benchmark ETF saw a significant increase in trading prices this year, rising by about 50%, marking its best performance since its inception. International stock markets outside of the US rebounded under the influence of fiscal reforms and a weaker dollar. Small-cap stocks significantly outperformed the S&P 500 index in the fourth quarter. The chart above shows that inflows into value funds surprisingly outperformed growth ETFs this year, with the former attracting $56 billion in funds, marking the second-largest annual inflow since 2000. The "great rotation" in 2026 is set to unfold, ushering in a broader bull market wave Top strategists from Wall Street, including firms like Goldman Sachs and Morgan Stanley, believe that the trend of rotation towards sectors outside of popular AI tech stocks will continue into 2026. Greg Calnon, co-head of Public Investments Global at Goldman Sachs Asset Management, predicts that the coverage range of US profit growth will broaden, with mid-cap stocks and international stocks centered around Europe and China outperforming the US stock market. He believes that municipal bonds will continue to strengthen, supported by tax-adjusted yields more attractive than US treasuries, as well as strong investor demand. The Asset Management division at Goldman Sachs also states that the global stock market will continue its bull market rally in 2026, with a focus on boosting domestic economic growth amidst global populist sentiments and far-right forces dominating. This suggests that global stock markets will exhibit a more diversified rotation pattern, with investment opportunities no longer concentrated solely in AI; they also believe that the so-called "AI dividend" will spread beyond the core seven tech giants to more sectors. Goldman Sachs suggests that the signs of broader sectoral growth in global stock markets in 2025 will strengthen in 2026, breaking the pattern of the market being highly concentrated in AI tech stocks, with non-US and non-tech sectors likely to continue performing strongly under such rotation. David Lebovitz from Morgan Stanley Asset Management leans towards allocating to emerging market bonds and UK gilts, while selectively maintaining exposure to US stocks and AI tech stocks. A recent research report from Morgan Stanley suggests that the "Big and Beautiful" bill passed by the Trump administration in 2025 will significantly boost economic growth starting in 2026. Coupled with temporary inflation disturbances caused by Trump's tariff policies, as well as the rapid progress in the construction of AI data centers revolving around AI infrastructure, this will lead to a mild growth macroeconomic environment in the US dubbed as the "golden girl soft landing" in 2026. Therefore, Morgan Stanley defines 2026 as a "broad-based stock market bull market under a rolling recovery", with the S&P 500 index poised to surpass the 9000-point mark. They advocate for a return of risk preference in the market, and resonance in multiple cyclical industries under the theme of "US economic soft landing + rolling recovery". Morgan Stanley's top strategist Michael Wilson and his team recently released a report indicating that the current stock market is at the starting point of a new earnings cycle and a structural bull market. They predict that core leadership in the US stock market in 2026 will shift from mega-cap tech stocks benefiting from AI like NVIDIA, Google, and Microsoft to mid-cap and cyclical core sectors. The strategists at Morgan Stanley emphasize that under the investment theme of "US economic soft landing + rolling recovery" in 2026, cyclical stocks (especially strong cyclical sectors like industrials, financials, consumer discretionary, and healthcare) are poised to benefit significantly, with performance expected to be significantly better than the average benchmark performance of the past two to three years. Morgan Stanley states that the US stock market has emerged from a three-year "rolling recession" and has officially entered a "rolling recovery" phase, characterized by a typical early cycle environment. Macro-wise, Morgan Stanley expects the Fed to open a new capital expenditure cycle path in 2022, with real interest rates returning to normal, and corporate investments (especially in AI and manufacturing) becoming new growth engines. Another research report by Bank of America suggests that as the Trump administration implements "hot" economic policies to maintain support, going long on commodities will become the best trading theme in 2026, with all commodity trends eventually showcasing a rising gold-like pattern. Michael Hartnett, the leader of the strategist team at BofA who is known as the most accurate strategist on Wall Street, suggests that this forecast is based on the global economy transitioning from a post-financial crisis era of "monetary easing + fiscal tightening" to a post-pandemic era of "fiscal easing + deglobalization," where cyclical sectors have the best relative upside potential under a rotational market. It is worth noting that even as some investors move away from the classic 60/40 bet, the market has not abandoned multi-asset allocation. Funds are flowing into alternative assets from private credit and infrastructure to hedge funds and digital assets as investors seek exposures away from public markets. In some cases, this quest is no longer about achieving "portfolio balance," but about seeking alternative assets that offer similar "off-balance-sheet" returns or the ability to isolate oneself from market volatility.