Wall Street’s anything-but-tech trade shakes up US stock market

Investors have piled into supermarkets, energy companies and manufacturers this year, in an anything-but-tech trade powering a violent rotation beneath the surface of the US stock market.

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, Deutsche Bank data shows.

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 accelerated last week 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.

There has been “a major rotation into what we’d call AI‑immune sectors such as utilities, food, mining, construction, telecoms”, said Andrew Lapthorne, quantitative strategist at Société Générale.

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.

But despite the widespread gains, the S&P as a whole has struggled to make headway since tech shares peaked in late October, highlighting the massive tech sector’s outsized importance to the Wall Street benchmark.

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“The broadening out of market performance over the past several months has come at a cost: less stellar index-level gains,” said Kevin Gordon, head of macro at Charles Schwab.

Tractor company Deere 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. 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 Bank of America analysts note that consumer staples have had their best start to the year in more than a quarter of a century. Walmart’s 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 Magnificent Seven have failed to keep up. 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.”

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Analysts say the rotation began in the final quarter of 2025 amid signs of a broadening in earnings growth beyond megacap tech. That momentum has carried into fourth-quarter results 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.

The economy is forecast to grow at a 4.2 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 and metals and mining sectors that typically fare well during periods of economic expansion, according to Max Kettner, chief multi-asset strategist at HSBC.

Expectations of lower interest rates this year have also added to investors’ optimism about the trajectory of the US economy.

US software stocks have borne the brunt of the rotation under way within the market. A recent report from Goldman Sachs’ prime brokerage division showed hedge funds spent January selling the sector while shifting into cyclicals and industrials.

“The software house is on fire and the flames are starting to jump down the block,” said Jon Zauderer, a tech and software specialist at Citi.

As fears about the impact of Anthropic’s latest tools intensified, “people thought, OK, I need to de-risk,” Zauderer added. “Gaming companies, [electronic design automation] groups, IT services, everything got taken out.”

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Worries about how AI might disrupt software businesses spanning the publishing, legal and financial sectors may have translated into inflows for consumer staples, according to Jeff Blazek, co-chief investment officer and head of multi-asset strategies at Neuberger Berman.

“Capital that wanted safe, durable revenue needs a new home,” he said. “If it’s being sold out of things like software, perhaps it may be going into an area like staples, just as a parking lot, as a more defensive exposure.”

The AI wobbles have helped markets in Europe and Asia extend last year’s outperformance relative to the US. The Stoxx Europe 600 has risen nearly 5 per cent this year, compared with less than 2 per cent for the S&P, while many emerging markets have racked up much larger gains.

“We’ve seen a massive broadening out of the US into the rest of the world, and out of AI and tech into pretty much everything else,” said a senior equities trader at a European bank.