The Wall Street "Great Rotation" Is Underway: The AI Trade Is Receding, Tech Stocks Are Falling Out of Favor, and a Mass Migration of Capital Is Flowing Into Defensive Sectors

Analysts point out that the market is in a "state of alert" as investors rotate away from bets on the higher-risk technology sector into defensive stocks. Tech stocks the key force driving the stock market's gains in recent years have been notably volatile in 2026. Concerns about artificial intelligence (AI), particularly regarding capital expenditure, cash flow, debt and circular financing, have triggered market turmoil multiple times this year. Last week, Democrats swept Congress in the U.S. midterm elections, further adding pressure on the sector. As of the Nov. 10 close, Wall Street's tech-heavy Nasdaq Composite Index was up about 7.9% since the start of the year, but it gave back some of those year-to-date gains in October, falling 5.3% that month. The index, which brings together large tech companies such as NVIDIA Corporation (NVDA.US), Microsoft Corporation (MSFT.US), Alphabet (GOOGL.US) and Apple Inc. (AAPL.US), has rebounded in recent days but remains in decline for November, down 1.5% month-to-date, after briefly entering correction territory last week. Nasdaq is not the only tech index to suffer a sharp decline over the past month. South Korea's Kospi index, which is highly exposed to the semiconductor sector, fell 16.2% in October and is down more than 6% month-to-date. The MSCI World Information Technology Index fell 7% in October and has fallen a further roughly 4% month-to-date. The MSCI USA Information Technology Index has dropped about 11% since October. Meanwhile, defensive sector stocks have broadly rallied. MSCI indexes covering the consumer staples, health care and utilities sectors widely seen as the more stable assets in the stock market during periods of volatility or uncertainty have all risen sharply over the past month. Alastair Pinder, head of emerging markets and global equity strategy at HSBC, said in a Monday report that recent stock market moves have been "very violent and, in our view, overdone." Speaking about the AI industry's development, he said: "The market has already priced in higher implementation risk and expectations of capex delays. The U.S. semiconductor sector's valuation has been cut by 45% since June, with its current 12-month forward price-to-earnings ratio at just 13.5 times. How much more bad news needs to be digested?" He added that sector fundamentals remain broadly solid. "The rotation of capital into defensive sectors has become extreme," he noted. "Walmart Inc. (WMT.US) has a forward P/E of 40 times, near a record high, while NVIDIA Corporation is at just 13 times, near a record low." Russ Mould, investment director at AJ Bell, said that judging by investors' sector reallocation behavior, the stock market is in a "state of alert." In a Monday research note, he wrote: "These kinds of sector rotation signals are significant and can provide reference for stock pickers. As the old saying goes: a weak stock in a strong sector often outperforms a quality stock in a weak sector." AJ Bell's analysis of the 11 top-level industry sectors within the S&P Global, Inc. 1200 index shows that from the second half of 2026 to date, the energy sector has led performance, benefiting from the U.S.-Iran conflict pushing up oil prices; it is followed by health care and consumer staples. The data shows that the information technology sector was the strongest performer in the first half, gaining 28.4% cumulatively; after entering the second half, it fell more than 11%, becoming the worst-performing sector. Mould commented: "The information technology sector has gone from heaven to hell, from the best-performing sector to the worst." "The energy sector has been highly resilient, and consumer staples and health care have also held up well; the industrials sector has clearly weakened. These moves reflect both persistent market concerns about next year's economic outlook and investors' worries that the AI bubble is deflating."