--- title: "US stock rotation storm! Tech giants recede, undervalued sectors and AI hardware take over the bull market" type: "Topics" locale: "en" url: "https://longbridge.com/en/topics/37920319.md" description: "US stocks have shifted from "grouping around giants" to "blooming in multiple areas". Amid escalating geopolitical tensions and doubts about the Federal Reserve's independence, US stocks in 2026 have managed to rise against the trend. However, the protagonists of this bull market are no longer the tech giants that dominated the past three years. An epic capital rotation is reshaping the market landscape, transitioning from "grouping around giants" to "blooming in multiple areas", ushering in a completely new investment logic for US stocks. 01 The glory days of the "Magnificent Seven" tech giants are over, with ETFs hitting a two-year record of consecutive declines. The "Seven Tech Giants", once propping up half of the US stock market on the back of the AI boom, are now facing a collective withdrawal of capital..." datetime: "2026-01-19T11:06:48.000Z" locales: - [en](https://longbridge.com/en/topics/37920319.md) - [zh-CN](https://longbridge.com/zh-CN/topics/37920319.md) - [zh-HK](https://longbridge.com/zh-HK/topics/37920319.md) author: "[Sam港美股日记](https://longbridge.com/en/profiles/13275072.md)" --- > Supported Languages: [简体中文](https://longbridge.com/zh-CN/topics/37920319.md) | [繁體中文](https://longbridge.com/zh-HK/topics/37920319.md) # US stock rotation storm! Tech giants recede, undervalued sectors and AI hardware take over the bull market US Stocks: From "Hugging the Giants" to "Blooming Everywhere" Amid escalating geopolitical tensions and doubts about the Federal Reserve's independence, US stocks in 2026 have defied the odds and risen against the trend. However, the protagonists of this bull market are no longer the tech giants that dominated the past three years. An epic capital rotation is reshaping the market landscape, transitioning from "hugging the giants" to "blooming everywhere," ushering in a new investment logic for US stocks. 01 The Glory of the "Magnificent Seven" Fades, ETFs Set a New Two-Year Losing Streak The "Magnificent Seven" tech giants, which once propped up half of the US stock market on the back of the AI boom, are now facing a collective withdrawal of capital. Since January, Apple and Meta have seen their stock prices drop by 6%, while Microsoft has fallen nearly 5%, dragging down the S&P 500 Information Technology sector by 0.6% year-to-date, making it a stumbling block for the index's upward trajectory. This sell-off is directly reflected in the performance of related ETFs. The Roundhill Magnificent Seven ETF (MAGS), which focuses on equal-weighted allocations to the seven giants, fell 1.6% in January, on track for its first three-month losing streak since 2023. Trading data shows the ETF's recent turnover hovering between $100-200 million, with clear signs of capital flight, turning the once "star product" into a hotspot for sell-offs. However, this is not due to the AI boom fading but rather capital beginning to "stratify pricing" for tech stocks. The CIO of Navellier & Associates pointed out that the focus of AI trading has shifted from software to hardware, with market concerns that software growth won’t materialize until 2027-2028 when data centers are completed. Currently, the market prefers to allocate to more certain upstream sectors. 02 Rotation Becomes the Dominant Style: Defensive Sectors Surge, Cyclicals Also Strengthen "Rotation has almost become a trading style in itself, even evolving into momentum trading," said Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, accurately summarizing the core feature of the current US stock market. After flowing out of tech giants, capital hasn’t exited the market but has instead rushed to undervalued corners. Traditional defensive sectors like consumer staples unexpectedly surged, rising 3.7% last week to become the second-best-performing sector in the S&P 500, trailing only real estate. By mid-January, the sector's year-to-date gain had expanded to 5.7%, starkly contrasting with the tech sector's sluggishness. Behind this lies a strong demand for valuation repair—over the past three years, the consumer staples sector underperformed the S&P 500 by 67 percentage points. As the market re-examines undervalued areas, such assets naturally become the focus of capital inflows. Meanwhile, cyclical sectors benefiting from optimistic economic expectations have also shown resilience. The industrial sector rose 0.65%, while materials, though down slightly by 0.44%, demonstrated overall toughness, reflecting market confidence in the fundamentals of the US economy. This dual strength in defensive and cyclical sectors has significantly improved market breadth, providing solid support for the continuation of the bull market. 03 Small-Caps and AI Hardware Rise, New Themes Emerge The most eye-catching trend in 2026 is the strong comeback of small-cap stocks. The Russell 2000 Index has surged 7.9% year-to-date, far outpacing the S&P 500's 1.4% gain, showcasing remarkable momentum. Initially driven by expectations of Fed easing, lower interest rates effectively eased the debt pressure on small-caps, while subsequent optimism about their earnings growth prospects fueled further gains. The internal rotation within the AI supply chain is equally noteworthy. As large-cap tech stocks pull back, AI hardware companies like semiconductors have surged. Lam Research and KLA have both seen their stock prices rise about 30% this year, driving the iShares Semiconductor ETF up 13.7% year-to-date. These companies directly benefit from the expansion of capital expenditures in AI, becoming the new beneficiaries of the AI boom. More notably, AI technology is accelerating its penetration into traditional industries, creating new investment opportunities. Retail giant Walmart announced the adoption of Google's Gemini technology to create a new shopping experience, pushing its stock up over 7% this year and making it a leader in the consumer staples sector. This "AI + traditional industry" model is gaining increasing recognition among investors. 04 Market Logic Shifts: Can the Bull Market Continue? The current capital rotation in US stocks is essentially a shift from "narrative premium" to "earnings realization." Over the past three years, excessive concentration in tech giants prematurely priced in their future growth expectations. In 2026, the market is reallocating risk to uncover undervalued assets with solid earnings support. The Invesco S&P 500 Equal Weight ETF's 3.9% year-to-date gain, significantly outperforming the market-cap-weighted S&P 500, is the best evidence of this logic. Despite uncertainty around Fed rate policy—Goldman Sachs has delayed its forecast for the first rate cut to June 2026, and Vice Chair Bowman has emphasized caution over labor market fragility—confidence in economic growth remains. Goldman predicts US GDP will grow 2.8% in 2026, with inflation gradually converging toward the 2% target, providing a favorable macro environment for stocks. Wall Street analysts note that the market is refocusing on areas left behind. In this epic rotation, moving away from overreliance on tech giants and toward undervalued sectors, AI hardware, and small-caps may be the key to sustaining the 2026 bull market. For investors, adapting to this style shift is crucial to seizing new opportunities in a changing market. ### Related Stocks - [Apple Inc. (AAPL.US)](https://longbridge.com/en/quote/AAPL.US.md) - [Microsoft Corporation (MSFT.US)](https://longbridge.com/en/quote/MSFT.US.md) - [KLA Corporation (KLAC.US)](https://longbridge.com/en/quote/KLAC.US.md) - [Lam Research Corporation (LRCX.US)](https://longbridge.com/en/quote/LRCX.US.md) - [Meta Platforms, Inc. 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