Wall Street Rotation: Investors Cut Tech Exposure, Shift to Other Sectors

Quick overview

Investors appear to be rotating out of technology, pushing capital into other sectors.

While this shift is creating new opportunities beyond tech, there are also structural constraints that are limiting the broader market’s upside. Analysts see the ongoing rotation as opening selective opportunities outside the technology space.

Wall Street is struggling to shake off investor uncertainty. This is reflected not only in the poor performance of technology stocks—where the Nasdaq is on track for its worst week since the selloff triggered by U.S. tariffs in early April (“Liberation Day”)—but also in growing macroeconomic concerns. Recent labor market data point to a cooling economy, raising doubts about the sustainability of elevated equity valuations and calling into question the credibility of the “soft landing” narrative.

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At the same time, cryptocurrencies continue to slide with little resistance, the dollar weakens against the euro, and gold hovers near the $5,000 mark. The takeaway is increasingly clear: the latest sessions on Wall Street are sending a strong message.

Amid the sharp correction in the technology sector, other areas of the S&P 500 are beginning to take the lead. Evidence of this shift came in a single session when 92 stocks in the index hit new 52-week intraday highs—the highest figure since November 2024.

Crucially, leadership no longer came from the large AI-driven tech names. Instead, more traditional sectors such as industrials, defense, and transportation took center stage. Analysts note that of the 47 S&P 500 stocks that reached intraday all-time highs, only six belonged to the technology sector—and none were among the dominant AI leaders. Nearly half of the new records were concentrated in industrial stocks.

This dynamic highlights a classic sector rotation: investors are reducing risk in technology, where valuations had become stretched, and reallocating capital toward companies with more predictable cash flows and less exposure to the AI narrative.

Opportunities Beyond the Giants — and the Index Constraint

This shift follows several days of pronounced weakness in software stocks, driven by fears that massive AI-related capital spending may not translate into profits at the pace investors had expected. Analysts at Empower argue that this broad-based selloff is creating opportunities to identify companies in other sectors that have been punished despite stable fundamentals.

Among the main beneficiaries are defense stocks such as RTX and Northrop Grumman, which are rising on renewed interest from the Trump administration in missile systems and military technology. At the same time, transportation stocks like FedEx and Norfolk Southern are gaining support from expectations that the freight market may be near a cyclical bottom, pointing to a potential logistical turnaround in the coming quarters.

However, this rotation also faces a key structural limitation: the S&P 500 is market-cap weighted. Many of the stocks hitting record highs are mid- to large-cap companies, but they are not giants comparable to the dominant technology firms. Among the heaviest names are Walmart, Exxon Mobil, Johnson & Johnson, and Cisco—yet even combined, the group of 47 stocks setting intraday records represents just over 11% of the index’s total weight.

This distribution helps explain why, despite the strength in many individual stocks, the S&P 500 continues to struggle to decisively break above its record closing levels or consolidate above symbolic thresholds such as 7,000 points. Leadership is now more diversified—but it no longer rests on the index’s heaviestweights.

ABOUT THE AUTHOR See More

Ignacio Teson

Economist and Financial Analyst

Ignacio Teson is an Economist and Financial Analyst. He has more than 7 years of experience in emerging markets. He worked as an analyst and market operator at brokerage firms in Argentina and Spain.

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