Industrial Stocks Poised for Breakout as AI Fatigue Drives Rotation from Tech Darlings

If you blinked, you missed the moment when the market’s love affair with tech turned into a messy, public breakup. The AI trade, once the belle of the ball, is now the wallflower at the dance. The real action is quietly shifting to the industrials, a sector that’s been left for dead since the pandemic but is now showing unmistakable signs of life. This isn’t just another flavor-of-the-month rotation. It’s a structural pivot that’s catching a lot of fast money flat-footed.

Let’s start with the facts. Tech, as measured by $XLK, is stuck in neutral at $137.18, flatlining for days while headlines scream about “ultra-high” skepticism and the AI “disruption” narrative running out of steam. Meanwhile, a MarketWatch report flagged ten industrial names as “ripe” for outperformance, citing analyst calls for rapid sales growth and big gains over the next year. It’s not just talk. Flows into industrial ETFs have quietly picked up, and options open interest on sector leaders has started to tilt bullish. The rotation is real, and it’s accelerating.

The macro backdrop is fueling this shift. The latest JOLTS data showed U.S. job openings falling by nearly a million over the past year, a sign that the labor market is cooling but not collapsing. Rate cut expectations are back on the table, with the bond market pricing in a softer Fed. That’s a cocktail industrials can work with: lower rates, stable demand, and a market desperate for something, anything, that isn’t another AI story. The “dull, new” stocks are suddenly looking a lot less dull.

The historical context is telling. Every major tech unwind in the past decade has been accompanied by a rotation into cyclicals, but the difference this time is the sheer scale of the AI hype that preceded it. The unwind is messier, the skepticism is deeper, and the opportunity in industrials is arguably bigger. The sector is still trading at a discount to its long-term average on a price-to-earnings basis, and earnings revisions are finally moving in the right direction. Cross-asset flows show a clear pattern: money is leaving tech and finding a new home in the real economy.

This isn’t just about chasing the next hot sector. The structural story is compelling. Infrastructure spending is ramping up on both sides of the Atlantic, supply chains are being rebuilt, and the energy transition is creating new demand for everything from machinery to materials. Industrials are no longer just the boring backbone of the market, they’re the growth story that nobody saw coming.

The skepticism is understandable. After a decade of tech dominance, it’s hard to believe that industrials could lead the next leg higher. But the data doesn’t lie. Relative strength indicators are flashing green, and the sector’s correlation with macro growth surprises is as tight as it’s been in years. The options market is starting to price in bigger moves, and the sell-side is scrambling to upgrade names they ignored for years. If you’re waiting for a bell to ring, this is it.

Strykr Watch

Technically, the industrials sector is flirting with a breakout. The key level to watch is the 200-day moving average, which has acted as resistance for months but is now within striking distance. Momentum indicators are turning up, and the volume profile shows strong accumulation on up days. Support sits just below at the 50-day, providing a clear line in the sand for risk management. RSI is climbing but not yet overbought, suggesting there’s room to run before the sector gets stretched.

Options flows are telling their own story. Call buying has picked up in names like Caterpillar and Honeywell, while put/call ratios across the sector have dropped to multi-month lows. This isn’t just retail chasing headlines, there’s real institutional interest building. If the sector can clear resistance on volume, look for a fast move higher as shorts scramble to cover and momentum players pile in.

On the macro side, keep an eye on upcoming PMI data and any signs of acceleration in infrastructure spending. These are the catalysts that could turn a slow rotation into a full-blown stampede.

The risks are real, but manageable. The biggest threat is a sudden reversal in rate expectations, if the Fed signals that cuts are off the table, the rotation could stall. Earnings disappointments could also derail the rally, especially if companies fail to deliver on the growth narrative. And of course, any resurgence in tech sentiment could pull flows back out of industrials. But with the sector still trading at a discount and the macro backdrop improving, the risk/reward looks attractive.

For traders, the opportunity is clear. Look for pullbacks to support as entry points, with stops just below the 50-day moving average. Upside targets are the recent highs, with potential for a breakout if momentum continues to build. Options traders can play the move with call spreads, taking advantage of rising implied volatility. For the patient, this could be the start of a multi-quarter trend.

Strykr Take

This isn’t just another sector rotation. The industrials are staging a comeback, and the market is only just waking up to it. The setup is clean, the flows are real, and the risk/reward is compelling. Ignore the AI noise and follow the money, industrial stocks are where the action is now.