Major Rotation in US Stock Sectors: AI Tech Stocks Decline, Financials and Consumer Stocks Lead Gains

According to Zhitong Finance APP, the US stock market showed significant divergence on Monday: the strongest performing stocks this year were sold off, while other sectors remained resilient, making sector rotation increasingly evident.

According to Yahoo Finance calculations, as of midday Monday, the top 10% gainers in the S&P 500 this year fell by an average of about 1.6%, becoming the index’s worst-performing group for the day. Losses were even more concentrated among the biggest winners—of the 20 best performing stocks in 2026, 19 were down, with an average decline of 2.7%.

For example, SanDisk (SNDK.US) is still up over 500% year-to-date, but fell more than 7% on Monday alone. Micron Technology (MU.US) and Western Digital (WDC.US) have both doubled in price this year, but each dropped more than 5% on Monday.

Weakness is evident in the chip sector. Last week, the iShares Semiconductor ETF (SOXX) faced a sharp sell-off after rebounding to a key technical resistance level. Early Monday, the ETF fell to a three-week low before finding buying support near the $500 round number. Software stocks were also under pressure.

However, on the other side of the market, the picture was completely different.

"This is a large-scale rotation," said Mark Newton, Head of Technical Strategy at Fundstrat, on Monday. He noted that the market's leadership this year shifted from energy to tech, and now, as different tech subsectors pull back, financials, industrials, and healthcare have taken the lead.

The sector rotation trend is becoming more pronounced. On Monday, among major S&P 500 industry sectors, tech (XLK) performed the worst, while consumer staples (XLP), financials (XLF), and communication services (XLC) each rose 1%. The financial sector neared its all-time intraday high.

This rotation trend has persisted for months. Even as the chip sector entered a bear market, healthcare began breaking out to the upside; less than two weeks ago, some of the market's riskiest trades were still leading the index. Now, these previous leaders are fading, but the sell-off hasn't engulfed the whole market. Early Monday, although the S&P 500 dipped slightly, about 56% of its constituents still posted gains.

The US bull market has lasted nearly four years, and the current dynamic is very different from past broad-based declines. "We know sector rotation is providing considerable breadth to this market," Newton added.

Institutional Assessment: Rotation Is Consensus, Divergence Remains on Allocation

Wall Street’s mainstream institutions broadly agree that the current rotation will persist, but are divided on where to allocate.

J.P. Morgan released a research note on Monday, remaining optimistic on equities for the rest of the year, but believes gains will come from sector rotation rather than a broad-based rally. Strategist Fabio Bassi expects the market to grind higher, with sector rotation as the main theme.

Specifically, J.P. Morgan favors high-quality growth stocks and mega-cap cloud service providers, and believes the semiconductor sector has become attractive after recent revaluation. Additionally, J.P. Morgan interprets the steepening of the US yield curve as indicative of greater capital demand and investment opportunities, rather than concerns over policy mistakes.

Goldman Sachs takes a more cautious view. Senior trader Natasha Tiwana warns that the momentum structure of the AI theme has fundamentally shifted—within the momentum factor, semiconductors and the AI-composite sector are turning from long to short, while software has replaced them as the largest short-term momentum weight. Goldman notes that in 2026, single-day drops of over 5% in momentum factors have already surpassed the total of the past five years, and the market is being forced to seek broader diversification beyond the AI narrative.

For allocation, Goldman recommends investors shift focus to European and Japanese bank stocks, gold miners, and copper miners—hard asset exposures. However, Goldman also clarifies that the AI trade isn’t over, though its construct, momentum, and margin of safety are being rewritten in real time; it suggests taking a more tactical approach to AI beneficiaries, with particular focus on opportunities where price and EPS diverge significantly.

Looking ahead, the market is closely watching two key catalysts: Nvidia (NVDA.US) will release earnings on August 26, a "quarterly test" of the AI narrative; and Federal Reserve Chairman Waller will deliver his first keynote at Jackson Hole on August 28, which could provide new guidance on interest rates. With these two major events back-to-back, the direction of US equities will see a key inflection point.