Market Rotates to Heavy Industry as Tech Stumbles and Price Hikes Return

Market Snapshot

• 📈 S&P 500: 6,868 (+0.33%)
• 📈 NASDAQ 100: 24,873 (+0.42%)
• 📈 FTSE 100: 10,673 (+0.99%)
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• 📉 Ethereum (ETH): $1,982 (-0.42%)
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• 📈 Oil (WTI): $64 (+2.86%)
• 📈 Gold: $4,938 (+1.20%)

The Great Rotation: Investors Ditch Tech for Heavy Industry

This year is marking a clear changing of the guard in the stock market. After years of dominance, the so-called 'Magnificent 7' tech giants are all in the red for 2026, prompting investors to look for returns elsewhere. The new focus is on tangible, real-world assets—a trend Morgan Stanley has dubbed the “HALO” trade, standing for Heavy Assets and Low Obsolescence.

The S&P 500 continues to struggle, failing to close above the significant 7,000-point mark since late last year. According to Goldman Sachs, this marks the index's worst start to a year compared to global stocks since 1995, even as indexes in Europe and Japan test new highs. The reason is a paradox gripping US markets: investors are selling the biggest tech companies over concerns they aren't getting enough return on their multi-billion-pound AI spending, while also selling other companies set to be disrupted by that very same AI technology.

The Drivers of the Shift

• AI Infrastructure Boom: While AI software stocks are struggling, the demand to build the physical infrastructure for artificial intelligence is creating a boom for heavy equipment makers. Caterpillar shares are up nearly 20% in the last month alone.
• Policy Tailwinds: Government initiatives, including tax breaks for capital expenditure, are encouraging investment in domestic manufacturing and infrastructure, further boosting these 'old economy' sectors.
• Investor Repositioning: Hedge funds have been buying industrial stocks at the fastest pace in a decade. This signals a strategic move, positioning for a broader re-acceleration in global growth and capital spending, rather than a short-term tactical bet.

Case Study: Meta Doubles Down on Nvidia Hardware

Underscoring the boom in hardware, Meta Platforms has signed a massive multiyear deal with Nvidia, expanding its partnership in a move likely to be worth tens of billions of dollars. Meta plans to use millions of Nvidia’s current Blackwell and next-generation Rubin processors (GPUs), as well as its Arm-based Grace central processing units (CPUs) and Spectrum-X networking technology to support its massive data centre build-out and new AI features on its WhatsApp platform.

This deal shows Meta is doubling down on Nvidia's full ecosystem rather than switching to custom-designed chips. By integrating Nvidia's networking and processing units, Nvidia is moving from being a component supplier to the primary architect of Meta’s entire data centre. This move serves as a powerful reminder that while sentiment on AI stocks may be weak, the underlying spending on AI hardware is stronger than ever.

In stark contrast, tech-focused funds like the iShares Expanded Tech-Software Sector ETF are down over 23% year-to-date. Meanwhile, stalwarts like Coca-Cola and Johnson & Johnson are climbing, highlighting a flight to safety and tangible value.

:: admonition-note Key Takeaway: The market is undergoing a significant rotation out of technology and into industrial and materials stocks. This is fuelled by the AI infrastructure build-out and supportive government policies, suggesting a longer-term trend that could reshape market leadership for the rest of the year. :::

Key Company Movers

Beyond the broad rotation, several companies are making headlines with significant moves, from activist investors shaking up the travel industry to Warren Buffett placing new bets.

Amazon's Steep Tumble

Amazon has become the poster child for the market's current scepticism towards big tech spending. The e-commerce giant recently broke a nine-day losing streak that saw its stock plunge by around 18%, wiping out over $450 billion (£357 billion) in market value—its worst stretch in two decades.

The sell-off was triggered by its announcement of a colossal $200 billion capital expenditure plan for the year, which investors fear will not generate sufficient returns quickly enough. While the stock has seen a minor recovery, the episode highlights the market's impatience. Interestingly, the drop has attracted some high-profile bargain hunters, with Bill Ackman’s Pershing Square and Seth Klarman’s Baupost Group both revealing they have bought shares.

Activist Investors Target Travel Sector

Several big names in the travel industry are seeing their shares climb as activist investors agitate for change ahead of the busy spring and summer seasons.

• Norwegian Cruise Lines: Shares jumped over 12% after activist investor Elliott Investment Management took a 10% stake. Elliott is pushing the company to catch up with rivals, arguing the stock could climb to $56 from its current price of around $24. This pressure has already resulted in a leadership change, with a new CEO appointed last week.
• Tripadvisor: Activist firm Starboard Value, which owns a 9% stake, is threatening to replace the company's board. Starboard argues Tripadvisor is significantly undervalued compared to peers like Airbnb and Expedia and should explore selling some of its businesses or even the entire company.
• Southwest Airlines: Shares hit a new 52-week high after receiving an analyst upgrade from banking giant UBS.

Berkshire Hathaway's Latest Bets

In the final quarter under Warren Buffett's tenure as CEO, Berkshire Hathaway made some notable changes to its portfolio. The conglomerate revealed a new £375 million stake in the New York Times, signalling a bet on established media. At the same time, it continued to trim its positions in tech giant Apple and pared back its holdings in Amazon and Bank of America.

Other Notable Investor Moves

• Leon Cooperman's Omega fund has built a large new position in mortgage provider Rocket Companies.

Palo Alto Networks' Mixed Outlook

Cybersecurity firm Palo Alto Networks delivered a mixed message. It beat earnings expectations and raised its full-year revenue forecast, citing strong demand for AI security tools. However, the company cut its profitability outlook and reduced its full-year billings guidance, blaming the high costs of integrating recent acquisitions and rising memory prices. Its shares fell over 7% as investors weighed the lower profit forecasts.

Apple Acts as a Safe Haven Amid Tech Turmoil

In a fascinating development, Apple's stock is behaving less like a volatile tech name and more like a defensive consumer giant. The stock's correlation to the Nasdaq 100—meaning how closely its price moves in line with the index—has plummeted to a 20-year low. In February, Apple shares climbed about 1.7% even as the wider Nasdaq index dropped 3.3%.

This decoupling stems from Apple’s focus on physical hardware and relatively lighter spending on AI compared to its rivals. Investors appear to see its business as more insulated from AI software disruption. This perceived safety comes at a cost, however, as Apple trades at a high price-to-earnings multiple of 30.

Trump Media Stock Breaks Key Support Level

Shares in Trump Media tumbled 9.7% on Tuesday, closing below $10 for the first time since its 2024 merger. This is a significant psychological blow, as $10 is often seen as the base value for companies that go public via a Special Purpose Acquisition Company (SPAC), like Trump Media did. A fall below this level suggests the market now values the business at less than the cash it started with, reflecting deep concerns about its financial fundamentals despite its political prominence.

Media Merger Drama: Warner Bros. and Paramount Back at the Table

The media landscape continues to consolidate, with Warner Bros. Discovery (WBD) and Paramount Skydance back in deal talks. The discussions have restarted after Netflix, which had its own all-cash offer on the table, granted WBD a waiver to speak with its rival.

Netflix's co-CEO stated the move was to provide WBD shareholders with "complete clarity and certainty" by allowing Paramount to make its best and final offer. This high-stakes negotiation signals that major streaming and production companies are still hunting for scale to compete in a crowded market.

UK Economy Signals Rate Cuts as US Holds Firm

This week, the economic picture in the UK shifted dramatically, creating a clear divergence from the United States. A combination of falling inflation and a weakening jobs market in Britain has made a March interest rate cut from the Bank of England all but certain.

Inflation Cools but Services Remain Sticky

UK inflation fell sharply to 3.0% in January, its lowest level since March 2025. The drop was driven by tumbling costs for petrol and food. However, a key area the Bank of England watches closely—services inflation (which covers things like hospitality and transport)—barely moved, coming in at 4.4%. This 'stickiness' means that while the headline number is improving, underlying price pressures haven't been completely stamped out.

Rising Unemployment Seals the Deal

Perhaps more importantly, the UK labour market showed clear signs of cooling. The unemployment rate rose to 5.2%, a four-year high, while wage growth slowed considerably. This combination of slowing inflation and rising joblessness gives the Bank of England a strong reason to start cutting interest rates to support the economy.

The Great Divergence: Why the UK and US Paths Are Splitting

While the UK is pivoting towards easing, the US faces a more complicated outlook. The Federal Reserve is contending with potential price spikes from new trade tariffs and a large fiscal deficit, which could keep inflation higher for longer. The US jobs market also appears more stable on the surface. This contrast means the Bank of England is set to cut rates well before its American counterpart, a divergence that will likely put pressure on the pound sterling against the US dollar but could make UK stocks more attractive.

:: admonition-note Key Takeaway: The UK economy is weakening faster than the US, with falling inflation and rising unemployment paving the way for the Bank of England to cut interest rates as soon as March. This policy split is a major theme for global investors, favouring UK equities while presenting a headwind for the pound. :::

Corporate Health and Consumer Spending

Price Hikes Continue, But Margins Feel the Squeeze

After a period of holding prices steady, companies are pushing through a fresh wave of increases. Levi Strauss has added £5-£10 to its jeans, while food producer McCormick is passing on tariff-related costs. However, this doesn't mean it's all smooth sailing. Many retailers are finding that costs from tariffs are denting their profit margins, even as sales rise. This shows a delicate balancing act between passing costs to consumers and protecting their own profitability.

The Adobe Digital Price Index, which tracks online retail, recorded its largest monthly jump in 12 years in January. Furthermore, over half of small businesses are planning to raise their prices in the next three months, indicating this trend is just getting started.

A Three-Tiered Economy and the 'Boomcession'

A recent Bank of America report paints a picture of a US economy split in three, which helps explain why official data can feel out of step with many people's reality:

• Wealthy Spending: Healthy, up 2.5%—the highest rate since 2022.
• Middle-Income Spending: Flat, with no significant movement up or down.
• Lower-Income Spending: Barely growing at just 0.3%.

This division highlights the uneven nature of the current economic environment. It helps explain a new phenomenon being called the 'boomcession' — a mix of 'boom' and 'recession'. This term perfectly captures the widespread feeling of financial unease despite strong headline data like GDP growth. For many households, the economy feels like it's in recession, even when official numbers suggest a boom.

Economic Outlook: Fed's Internal Split Hints at Longer Pause

While Chicago Fed President Goolsbee has suggested that "several" interest rate cuts could be on the cards for 2026, the latest meeting minutes reveal the central bank is far from united. The decision to hold rates in January came from a contentious 10-2 vote, with two governors pushing for an immediate cut.

The majority, however, felt it was prudent to wait for more evidence that inflation is on a sustained downward path toward the 2% target. They noted that inflation in the services sector remains a concern. This internal split suggests the 'wait and see' approach could last longer than some investors hope, reinforcing the policy divergence with the UK.

:: admonition-note Key Takeaway: The Federal Reserve is internally divided but leaning towards holding rates steady until inflation shows more convincing signs of retreat. Meanwhile, US consumer spending is sharply divided by income, with the wealthy propping up growth while other households stagnate. :::

Global Markets & Commodities

• Copper Demand Boosts Miners: Australia’s BHP Group, one of the world's largest miners, has seen its profits rise on the back of strong demand for copper. The metal is a critical component in almost everything, from electronics to construction, making it a reliable indicator of global economic activity.
• Oil Prices Dip on Diplomatic Overtures: Oil prices fell after news that the U.S. and Iran are attempting to negotiate a deal. Tensions in the Middle East often push oil prices higher due to fears of supply disruptions. These talks have eased those concerns, leading traders to expect that supply will remain stable.
• Japan's Strategic Investment in US Infrastructure: Japan has committed roughly $36 billion to major US infrastructure projects, including a massive natural gas power plant in Ohio. This investment is part of a larger strategy where Japan provides capital for US industrial capacity in exchange for a cap on US trade tariffs on Japanese goods. It's a significant bet on the need for reliable power to support the AI boom.

Housing Market Shifts in Buyers' Favour

For the first time since 2019, the housing market is tilting back towards buyers. A significant 62% of home purchases last year were completed for less than the original asking price, giving buyers negotiating power they haven't had for years.

The average discount on homes sold below list price was 8%, the largest markdown seen since 2012. This shift is a direct result of affordability pressures and a larger pool of available properties for sale.

However, challenges remain. Confidence among home builders has dropped to its lowest point since September 2025, weighed down by high material costs from tariffs and a shrinking labour pool. In response, the Federal Reserve is considering rule changes that would make it easier for banks to get back into mortgage lending, which could increase competition and potentially lead to better rates for borrowers.

Crypto Market Matures Beyond Speculation

While sentiment for major cryptocurrencies like Ethereum has been described as being at "rock bottom" by some analysts, underlying developments show the market is maturing. The conversation is shifting from pure price speculation to real-world application, attracting serious attention from institutional finance.

The Rise of 'Real-World' Digital Assets

The market for 'tokenized real-world assets'—essentially digital tokens on a blockchain that represent ownership of physical or financial assets like property, bonds, or gold—is booming. On the Ethereum network alone, this market has surged by 315% in the past year to over $17 billion.

This isn't just a retail trend. Major financial players like BlackRock and JPMorgan are expanding their own tokenized products, particularly for US government bonds. This signals a move towards using blockchain technology as a new, more efficient settlement layer for traditional finance.

Stablecoins Become Everyday Money

Stablecoins, which are cryptocurrencies pegged to a stable asset like the US dollar, are moving beyond trading and into daily use. A recent global study found that they are increasingly used for savings and cross-border payments, with freelancers reporting around 35% of their annual earnings are paid in stablecoins to avoid high fees.

Other Market Signals

• Institutional Bets: Furthering the institutional theme, ARK Invest recently bought an additional $15.2 million worth of shares in the crypto exchange Coinbase across three of its funds.
• Shifting Activity: Polygon, a network that runs alongside Ethereum to offer lower fees, briefly handled more in daily transaction fees than Ethereum itself, showing how users are actively seeking out cheaper alternatives.
• A Colder Climate for Funding: It’s not all good news. Venture capital funding for new crypto projects has collapsed since its peak in 2022, making it much harder for new start-ups to get off the ground.

:: admonition-note Key Takeaway: Despite weak price sentiment, the crypto sector is seeing huge growth in the tokenization of real assets, driven by major institutions. This pivot towards practical, real-world use cases marks a significant maturation of the digital asset market. :::

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NOTE: This content is for informational and educational purposes only and does not constitute financial advice. Always do your own research. Not financial advice (NFA).