Global equity markets are showing signs of a significant shift in investor positioning, with money moving away from volatile technology stocks towards defensive sectors such as healthcare, consumer staples and utilities as concerns about artificial intelligence spending and the economic outlook intensify.
The rotation has prompted analysts to describe markets as being in a “state of alert”, with investors reassessing exposure to companies that have driven much of the stock market rally in recent years.
Technology shares have experienced repeated bouts of volatility in 2026 as investors question whether the enormous capital expenditure on AI infrastructure will generate sufficient returns. Concerns over cash flow, rising debt obligations and circular financing arrangements have added to scrutiny of the sector.
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The Democratic Party’s sweep of Congress in the US midterm elections intensified pressure on technology stocks last week, as investors considered the possibility of greater regulatory scrutiny and delays to data-center development.
Wall Street’s technology-heavy Nasdaq Composite was up approximately 8.7% for the year as of the November 9 close. However, the index lost 5.3% in October and remains down 0.7% for November, even after recovering some ground in recent sessions. It also briefly entered correction territory last week.
The Nasdaq’s volatility has been mirrored across other markets with substantial semiconductor exposure. South Korea’s Kospi, which is heavily weighted towards technology and chipmakers, fell 16.2% in October and has declined by more than 8% so far in November.
The MSCI World Information Technology Index lost 7% in October and has fallen another 4.6% this month. Its US-only equivalent is down 11.5% since October.
The weakness in technology shares has coincided with stronger performance across traditionally defensive sectors.
MSCI indexes covering consumer staples, healthcare and utilities have all recorded significant gains over the past month. These industries are generally considered less sensitive to economic uncertainty because demand for essential goods, medical services and electricity tends to be more stable than spending on discretionary products or technology investments.
Alastair Pinder, HSBC’s head of emerging markets and global equity strategy, described the recent market movements as “vicious, and in our view, overdone” in a note on Monday.
He argued that investors had already priced in greater execution risks and potential delays to AI infrastructure spending.
“The market is already pricing greater execution risk and capex delays,” Pinder said.
He pointed to the valuation decline in US semiconductor stocks, which were trading at 13.5 times forward earnings, following a 45% de-rating since June.
“With US semiconductors trading on a 12-month forward PE of 13.5x after a 45% de-rating since June, how much more pain is there to price?” he asked.
Pinder added that underlying business fundamentals remained broadly healthy, suggesting that the scale of the rotation away from technology stocks may have outpaced changes in their operating performance.
“The rotation into defensives looks extreme,” he said, comparing Walmart’s forward earnings multiple of 40 times, close to a record high, with Nvidia’s 13 times, near a record low.
The valuation gap highlights how investors are increasingly paying a premium for companies perceived to offer more predictable earnings while discounting technology businesses exposed to uncertainty over AI investment returns.
However, lower valuations do not automatically make semiconductor stocks attractive. Investors still need evidence that spending on advanced chips, computing infrastructure and data centers can translate into sustainable earnings and cash generation.
Russ Mould, investment director at AJ Bell, said the movement between sectors indicated that investors were becoming more cautious about the broader market outlook.
“Such movement matters, and can help stock pickers with their selections, bearing in mind the old adage that ‘a bad stock in a good sector will outperform a good stock in a bad sector,'” Mould said in a Monday note.
AJ Bell’s analysis of 11 so-called super-sectors in the S&P Global 1200 showed that healthcare and consumer staples were among the strongest performers in the second half of 2026, behind energy.
Energy has benefited from higher oil prices following the US-Iran war, while defensive industries have attracted investors seeking more stable earnings.
Information technology has experienced the sharpest reversal. The sector gained 28.4% in the first half of the year, making it the strongest performer, but has fallen by more than 11% in the second half, becoming the weakest.
“Information Technology has gone from penthouse to outhouse and slumped from being the best performer to the worst,” Mould said.
He added that energy, consumer staples and healthcare had remained resilient, while industrials had also performed poorly.
“These trends could reflect nagging worries over the economic outlook for next year, as well as worries over whether air is leaking out of an AI ‘bubble,'” he said.
The change in sector leadership suggests that investors are questioning not only the valuations of individual technology companies but also the broader economic assumptions supporting the AI investment boom.
The major concern is whether spending on data centers, advanced processors and other infrastructure can deliver returns quickly enough to justify the capital being committed. Companies are expanding computing capacity at enormous cost, while investors are demanding clearer evidence of revenue growth, profitability and cash flow.
The rotation also presents a test for technology stocks that have enjoyed substantial gains from expectations of sustained AI demand. A recovery may depend on stronger earnings evidence and greater confidence in the economics of infrastructure investment.
However, the movement into defensive sectors currently indicates that investors are placing greater emphasis on earnings stability and capital preservation as they assess the risks facing technology valuations and the wider economy.