S&P 500’s Rotation Riddle: Can Value Outrun Tech as Wall Street’s AI Obsession Falters?

If you thought the S&P 500 would just keep floating higher on the back of a handful of tech megacaps, the last few sessions have been a rude awakening. The sector rotation that’s been whispered about for months has finally arrived, and it’s not subtle. Tech stocks are getting their faces ripped off, software is being priced like it’s 2002, and value sectors are suddenly the belle of the ball. The question for traders: is this the start of a durable regime shift, or just another head fake before the AI narrative drags everything back to all-time highs?

Let’s start with the scoreboard. US stock futures are steady in Asia after a bruising session for tech, with the Nasdaq and S&P 500 diverging as rotation flows hit overdrive (fxempire.com, 2026-02-03). The Dow Jones is flat, but under the hood, it’s a tale of two markets. The “AI panic” that’s been hammering software and growth stocks has left value sectors, think banks, energy, industrials, looking like safe havens. According to Seeking Alpha (2026-02-03), US equity flows are turning to traditional sectors after years of tech outperformance. Hardware is holding up, but software is in freefall. Even Jim Cramer is waving the white flag, telling anyone who’ll listen that investors are paying less and less for software earnings (youtube.com, 2026-02-03).

The macro context is a minefield. The Fed is in disarray after Stephen Miran’s resignation from his dual role at the central bank and the White House (wsj.com, 2026-02-03). Senate Democrats are demanding a delay on Kevin Warsh’s nomination until Powell and Cook investigations end (cnbc.com, 2026-02-03). Meanwhile, ISM services data and PMI releases are looming, with traders on edge about the next macro shoe to drop. The only thing that’s clear is that the easy money era of “just buy tech and chill” is over, at least for now.

Historically, sector rotations like this don’t happen in a vacuum. The last time we saw a similar shift was in the aftermath of the dot-com bust, when value outperformed growth for the better part of a decade. Of course, the world is different now, AI is real, and the tech sector isn’t going away. But the market’s sudden willingness to pay up for banks and industrials while marking down software multiples is a signal that risk appetite is shifting. Correlations are breaking down, and cross-asset flows are telling a story of investors looking for shelter from the AI storm.

The analysis here is simple but brutal: the market is finally calling BS on the idea that every company with “AI” in its pitch deck deserves a 30x multiple. The software-as-a-service model, once the darling of Wall Street, is now being repriced as investors worry that new AI tools will eat margins and commoditize everything. Hardware is holding up because, in a world where AI is king, someone still has to sell the shovels. But the real winners right now are the boring sectors, banks, energy, industrials, that have been left for dead during the tech mania. The question is whether this rotation is sustainable or just a tactical repositioning ahead of the next earnings season.

Strykr Watch

The S&P 500 is hovering near recent highs, but the internals are a mess. Breadth is improving as value sectors catch a bid, but tech is dragging on the index. Key levels to watch: support at 4,850, with resistance at 5,000. If the index breaks below 4,800, expect a quick flush to 4,700 as stops get triggered. On the sector level, watch for continued outperformance in banks and energy, if these groups keep leading, the rotation trade has legs. RSI on the S&P 500 is rolling over from overbought territory, and the VIX is starting to stir from its slumber. This is not the time to be complacent.

The risks are obvious. If the Fed surprises hawkishly, or if macro data comes in hot, the rotation could turn into a full-blown correction. Tech could bounce back hard if the AI narrative regains traction, leaving value chasers holding the bag. There’s also the risk that the market’s newfound love for banks and energy is just a knee-jerk reaction to short-term pain in tech, and not a durable shift in leadership. Finally, geopolitical risk remains a wildcard, with China’s PMI and Japan’s consumer confidence data on deck for March.

But there are opportunities here for traders willing to play the rotation. Long value, short tech is the obvious trade, but the real edge is in timing the reversals. Look for oversold tech names with strong balance sheets as bounce candidates, while riding the momentum in banks and energy. Pair trades, long industrials, short software, can capture the dispersion without taking outright market risk. For the index, buying dips near 4,850 with stops below 4,800 offers a favorable risk-reward, targeting a retest of 5,000 if breadth continues to improve.

Strykr Take

The S&P 500’s rotation is real, and it’s not just a blip. The market is repricing risk, and the days of tech dominance look numbered, at least for this quarter. Value is back in vogue, and traders who can adapt to the new regime will be rewarded. Don’t fight the tape, but don’t chase late. Play the rotation, manage your risk, and keep an eye on the macro calendar. This is the most actionable market we’ve seen in years.

Date Published: 2026-02-04 03:30 UTC