AI Bubble or Boring Rotation? Smart Money Ditches Tech as Commodities Flatline

The AI trade was supposed to be the only game in town. Now, it looks like the smart money is running for the exits, and the rotation is getting awkward. The Invesco DB Commodity Index ($DBC) is stuck in neutral at $23.54, and the Technology Select Sector SPDR ($XLK) is frozen at $145.26. If you’re looking for leadership, you won’t find it here. Instead, you’ll find a market that’s bored, restless, and increasingly skeptical of last year’s narratives.

The headlines have been relentless: “Smart Money Is Rotating Out of Tech, Here's Where It's Going,” says YouTube’s Robert Schein. “Five AI Value Stocks for Investors to Consider,” Barron’s pleads, as if value is suddenly cool again. But the price action tells a different story. $XLK is dead flat, refusing to budge despite the supposed broadening of market leadership. $DBC is equally inert, masking the volatility beneath the surface.

The Dow’s 1.1% gain on manufacturing strength is a sideshow. The real story is that the old regime, tech dominance, AI euphoria, and relentless growth chasing, is being quietly unwound. The AAII Asset Allocation Survey shows a subtle but telling shift: stock allocations down, bond allocations up. The “Fed put” is gone, and with it, the willingness to pay nosebleed multiples for stories that don’t cash flow.

Let’s talk about the rotation. It’s not the violent, panic-driven kind. It’s more like a slow leak. Institutional money is quietly reallocating, trimming tech, and nibbling at value, bonds, and defensive sectors. The AI narrative isn’t dead, but it’s not enough to keep the party going. The SpaceX-xAI merger at a $1.25 trillion valuation is a spectacle, but it’s not moving the needle for the average tech ETF holder. The market is asking: what’s next?

Cross-asset correlations are breaking down. Tech and commodities used to move in opposite directions, but now they’re both stuck. The volatility in precious metals is a warning sign, silver down 33% in two sessions is not normal. It’s a sign that liquidity is thin, conviction is low, and algos are in charge. The flatlining in $XLK and $DBC is the market’s way of saying, “We have no idea what happens next.”

The macro backdrop is equally murky. The Fed is in transition, with Warsh’s nomination creating more questions than answers. The US jobs report is delayed, adding to the uncertainty. China’s PMI is on deck, but nobody expects fireworks. The only thing that’s clear is that the easy money era is over. The risk-on, tech-led bull market is on life support, and the market is desperately searching for a new theme.

The analysis here is simple: leadership is absent, and the market is in a holding pattern. The AI bubble talk is getting louder, but the real risk is that there’s nothing to replace it. Defensive rotation is the order of the day, but it’s not exactly inspiring. The market wants to believe in a new narrative, but it hasn’t found one yet.

Strykr Watch

Technically, $XLK is trapped between support at $143.00 and resistance at $147.50. A break in either direction will set the tone for the next leg. The RSI is stuck in the middle, and moving averages are converging, classic indecision. $DBC is in a similar spot, with support at $23.00 and resistance at $24.00. Watch for a volatility spike if either level breaks. For now, the market is content to wait and see.

The risk is that the rotation out of tech turns into a rout. If $XLK breaks below $143.00, look out below. The other risk is that commodities, which have been quietly bid, suddenly roll over if the global growth story falters. The biggest risk, though, is that there’s no new leadership. If the market can’t find a new narrative, we could be in for a long, boring grind.

On the opportunity side, nimble traders can play the range in $XLK and $DBC. Buy support, sell resistance, and keep stops tight. If tech catches a bid, there’s room for a quick rally to $150.00, but don’t overstay your welcome. If commodities break out, look for oversold bounces in energy and metals. The key is to stay flexible and not get married to any one theme.

Strykr Take

The AI bubble isn’t bursting, it’s deflating. The rotation is real, but it’s not the kind that makes headlines. The market is searching for leadership, and until it finds it, expect more chop, more boredom, and more false starts. Trade the range, respect the risk, and don’t fall in love with last year’s winners.