US Tech’s Momentum Stalls as Rotation Hype Grows: Is the AI Trade Finally Running Out of Juice?

The tech sector’s gravity-defying run is showing its first real signs of fatigue, and Wall Street’s most over-caffeinated traders are suddenly asking if the AI trade is running on fumes. At $140.94, the Technology Select Sector SPDR Fund isn’t moving, and that’s exactly the problem. For months, the narrative has been simple: buy tech, buy AI, buy anything with a whiff of silicon. But now, with XLK flatlining and headlines screaming about rotations out of tech, the market is giving off the scent of a regime shift.

Let’s not sugarcoat it. The last time tech looked this complacent, it was 2021 and everyone was buying call spreads on meme stocks. Now, the S&P 500 is being dragged lower by the same names that powered its rally. According to fxempire.com, “Tech stocks drag the S&P 500 and Nasdaq as the Dow rises, with investors watching earnings, AI outlook, and US stock market momentum today.” That’s code for: the leadership baton is wobbling, and the algos are confused.

The rotation chatter isn’t just noise. Seeking Alpha reports that “Non-U.S. And Emerging Equity Markets Took The Leadership Baton In 2025,” and that outperformance is starting to catch up with US tech. Meanwhile, the VIXEQ-VIX spread is flashing warnings about volatility dispersion unwinds, a nerdy way of saying that when everyone is on one side of the boat, it doesn’t take much for it to tip.

The real story here is that the AI narrative, which has been the market’s security blanket for two years, is colliding with the reality of stretched valuations, crowded trades, and a Fed that is suddenly talking about “aggressive interest rate cuts.” When the policy backdrop shifts this fast, the market’s favorite darlings can turn into dead money overnight. Federal Reserve Governor Stephen Miran’s call for “aggressive interest rate cuts exceeding one percentage point” (foxbusiness.com) is a tacit admission that the economy isn’t as bulletproof as the tech multiples suggest.

So what’s actually happening under the hood? The XLK is stuck at $140.94, refusing to budge. That’s not a bullish consolidation, it’s a sign of exhaustion. The S&P 500 is mixed, with tech weakness offset by old-economy stalwarts in the Dow. The market is digesting a cocktail of delayed jobs data (thanks, government shutdown), AI hype fatigue, and the realization that the easy money has already been made.

Historically, when tech leadership stalls, the market doesn’t gently rotate into value and everyone lives happily ever after. More often, the unwind is messy. Think 2018’s “volmageddon” or the 2022 growth-to-value whiplash. The current environment is eerily reminiscent of those periods, with volatility metrics hinting at a potential air pocket ahead.

Cross-asset flows are telling the same story. Commodities are dead flat (DBC at $24.07), and crypto is in the throes of a “liquidation cascade.” There’s nowhere to hide, and that’s exactly when the market tends to do something dramatic.

The AI trade isn’t dead, but it’s not invincible either. The S&P 500’s dependence on a handful of mega-cap tech names is a risk, not a feature. If the rotation out of tech accelerates, the index could find itself without a safety net. The fact that non-US and emerging markets are outperforming is both a warning and an opportunity.

Strykr Watch

Technically, XLK is parked at $140.94, a level that’s been tested repeatedly over the past month. The 20-day simple moving average is the line in the sand, and a break below would open the door to a retest of the 50-day around $137. Relative strength index (RSI) readings are drifting lower, signaling waning momentum. The S&P 500 is flirting with its own 20-day SMA, and if that gives way, the next stop is the January lows.

Option flows are showing a pickup in downside hedging, with put/call ratios ticking higher. Market breadth is deteriorating, with fewer stocks making new highs. This isn’t a panic, but it’s not the kind of backdrop that supports another leg higher in tech without a reset.

The risk is that the market is underestimating how quickly sentiment can flip. If the jobs data (whenever it finally arrives) disappoints, or if earnings guidance starts to slip, the unwind could accelerate.

The bear case is straightforward: stretched valuations, crowded positioning, and a macro backdrop that’s suddenly less friendly. The bull case? The Fed cuts aggressively, AI hype finds a second wind, and the rotation is orderly. But when has the market ever done “orderly”?

For traders, the setup is clear. Watch XLK at $140.94. A break below the 20-day SMA is a sell signal. On the upside, a move above $143 would invalidate the bear thesis, at least temporarily. The S&P 500 is the canary in the coal mine, if it loses the January lows, all bets are off.

Strykr Take

The AI trade isn’t over, but the days of effortless gains are. This is a market that’s begging for a shakeout, and tech is the obvious candidate. If you’re long, tighten stops. If you’re looking for rotation, don’t chase yesterday’s winners. The next move is likely to be violent, and the algos are already sharpening their knives. Strykr Pulse 48/100. Threat Level 3/5.