With 2025 ending and 2026 positioning underway, strategists and traders are increasingly preparing for a market where the biggest tech winners stop doing all the lifting. Wall Street strategists are steering clients toward broader, less-loved sectors as leadership shifts from the “Magnificent Seven” style trade to more cyclical and defensive areas. The move is happening now, not “sometime next quarter,” which is why it matters.
The catalyst is a double squeeze on the AI trade: renewed skepticism about AI buildout profitability and a parallel repricing of global rate paths. Oracle’s post-earnings slide was singled out as a trigger for a wider de-risking in AI-linked names, with flows moving into materials, industrials, financials, and health care. Analysts framed it as more than a one-week head fake. That is a sharp turn from earlier in 2025, when momentum and capex narratives were enough to justify almost any multiple.
Investors are also weighing a distinctly two-sided 2026 setup. Stifel’s scenario work highlights the asymmetry: about 9% upside for the S&P 500 if the economy stays intact, but a fast 20% drawdown if recession hits. Stifel assigns a 25% chance to that recession scenario, and the bank notes the economy’s dependence on consumption, with consumer spending at 68% of GDP. Elevated valuations amplify the risk that any growth wobble turns into a rapid de-rating rather than a slow grind.
Positioning implication: treat the rotation as a risk-management upgrade, not an anti-tech manifesto. If leadership is broadening, portfolios that relied on a narrow set of mega-cap winners need new sources of earnings durability.
