Rotation Lifts Energy 23% as Tech Slips Since Oct. 28
Investors rotate from crowded tech into energy, materials, and industrials as market leadership begins to broaden.
This article first appeared on GuruFocus. After years of near-uninterrupted tech leadership, the US equity market is starting to show signs of strain, with volatility creeping back into the artificial intelligence trade and investors increasingly looking elsewhere for balance. That shift has begun to funnel capital toward more traditional parts of the market, including energy, materials, industrials, and consumer-oriented businesses, where leadership has been far less crowded. Since late October, that rotation has lifted names such as Southwest Airlines (NYSE:LUV), Albemarle (NYSE:ALB), Moderna (NASDAQ:MRNA), and CH Robinson Worldwide (NASDAQ:CHRW), helping support broader index gains even as technology's dominance has softened.
Strategists at Roth suggest that the non-technology segment of the S&P 500 could return about 6% by May if recent technical trends hold, framing the move not as a wholesale exit from tech but as an early effort to rebalance portfolios after years of concentration. Is LUV fairly valued? Test your thesis with our free DCF calculator. The idea of market leadership broadening has been building for months, even as brief tech-led rebounds including late last week have temporarily slowed the narrative. Still, positioning remains heavily skewed toward mega-cap technology after three years of outperformance, which could be improving the relative setup for other sectors.
Bank of America notes that the average S&P 500 stock outside the Magnificent Seven is held at roughly 20% below its index weighting and owned by only about 10% of funds, while most mega-cap tech names excluding Tesla (NASDAQ:TSLA) and Apple (NASDAQ:AAPL) are widely held and overweight. Against that backdrop, expectations for 11% median earnings growth across the Russell 3000 this year, the strongest in four years, are reinforcing the view that leadership could gradually extend beyond a narrow group of tech giants. Recent performance trends appear consistent with that thesis. Since Oct.
28, the S&P 500 Information Technology sector has slipped 6.7%, while energy has climbed 23%, materials are up 17%, and both consumer staples and industrials have risen 12%, leaving the broader S&P 500 modestly higher. The rotation has also helped push the Dow Jones Industrial Average above 50,000, even as declines in Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), and Meta Platforms (NASDAQ:META) have weighed on the Nasdaq 100 and products such as the Invesco QQQ Trust (NASDAQ:QQQ). Some strategists expect QQQ could continue to underperform smaller-cap, equal-weight, a
nd value areas as capital slowly moves out of still-crowded mega-cap trades, while stopping short of calling for investors to abandon technology altogether.