Global equity markets are undergoing a sharp rotation as investors reassess their tolerance for risk following weeks of volatility that rattled previously high-flying sectors. Cheaper, smaller companies are attracting renewed interest, while assets that once dominated portfolios—including megacap technology and speculative trades—are facing increased scrutiny.
The shift has produced stark contrasts across markets. The Dow Jones Industrial Average climbed to a record high on Friday, even as software stocks shed roughly $1 trillion in market value over the course of the week. The divergence highlights growing wariness toward sectors that have led gains in recent years, alongside rising demand for more defensively positioned or overlooked stocks.
While the S&P 500 rose 1.78% on Friday and the Nasdaq 100 gained nearly 2%, small-cap stocks led the rebound. The Russell 2000 surged 3.5%, outperforming broader benchmarks as investors sought opportunities beyond megacap technology. Several members of the so-called “Magnificent Seven” lagged the rally, with Amazon shares sliding amid concerns about returns on its planned $200 billion investment in artificial intelligence infrastructure.
Market participants say the move reflects a reassessment of risk, particularly around AI-related spending. Investors are increasingly weighing the potential payoff of massive capital expenditures by hyperscalers such as Amazon, Microsoft, and Alphabet, as well as the threat AI poses to companies whose business models could be disrupted by the technology.
After years in which technology stocks powered the U.S. bull market, expectations have grown that gains will broaden across other segments, including industrials, healthcare, dividend-paying equities, and smaller companies. That transition has accelerated in recent weeks, driven in part by heightened volatility and crowded positioning in former market leaders.
The rotation is not limited to equities. Precious metals and speculative assets have also come under pressure. Bitcoin briefly fell to a 16-month low near $60,000 before recovering to just under $70,000, still well below its October peak of $126,000. Analysts point to extreme intraday swings across asset classes as investors rebalance portfolios and seek shelter amid unsettled conditions.
Despite Friday’s rebound, doubts persist over whether the recent selloff in technology and software stocks has fully run its course. The iShares Expanded Technology Software ETF rose 3.5% on Friday but ended the week down more than 9%, suggesting that late-week buying did little to offset earlier losses. Silver also recovered modestly, though it remains well below recent highs.
Defensive and economically sensitive sectors have emerged as relative winners. Energy, materials, consumer staples, and industrial stocks have posted double-digit gains so far this year, far outpacing the S&P 500’s modest rise. Strategists say the trend reflects more than short-term positioning, instead pointing to a broader unwind of speculative trades and a reallocation toward value and stability.
As investors continue to debate the long-term profitability of AI investments, markets appear increasingly divided between former darlings and a new set of potential leaders. The result is a period of market broadening marked not by calm transitions, but by sharp, turbulent shifts in capital as investors adjust to a changing risk landscape.