Stock Market Rotation: Investors Shift from Technology to Defensive Shares

Global equity markets are showing signs of heightened caution as investors shift away from volatile technology stocks towards defensive sectors, with analysts describing the trend as a warning of growing market uncertainty.

Technology stocks, which have driven major market rallies in recent years, have experienced significant volatility in 2026. Concerns over artificial intelligence (AI) investment, particularly capital expenditure, cash flow, debt and circular financing arrangements, have triggered several periods of market turbulence.

Political developments also added pressure to the sector last week, following the Democrats’ sweep in the US midterm elections.

Wall Street’s technology-heavy Nasdaq Composite Index had gained around 8.7% since the start of the year as of the November 9 close. However, the index lost 5.3% in October, surrendering part of its earlier gains. Although it has recovered in recent sessions, the Nasdaq remained down 0.7% for November as of November 10, after briefly entering correction territory last week.

The index includes major technology companies such as Nvidia, Microsoft, Alphabet and Apple.

Other technology-focused markets have also faced substantial losses. South Korea’s Kospi index, which has significant exposure to semiconductor companies, fell 16.2% in October and remained more than 8% lower for November so far.

The MSCI World Information Technology Index declined 7% in October and lost a further 4.6% in November through the reported period. Its US-only information technology index has fallen 11.5% since October.

In contrast, defensive sectors have recorded broad gains. MSCI indexes tracking consumer staples, healthcare and utilities have all advanced significantly over the past month, reflecting growing investor preference for sectors generally considered more resilient during periods of market uncertainty.

In a note on Monday, Alastair Pinder, HSBC’s head of emerging markets and global equity strategy, described recent market movements as “vicious” and, in his view, excessive.

He said markets were already accounting for greater execution risks and potential delays in AI-related capital spending. Pinder also questioned how much further semiconductor stocks could fall, noting that US semiconductor companies were trading at 13.5 times forward earnings after a 45% valuation decline since June.

He added that underlying corporate fundamentals remained broadly healthy.

Pinder also described the shift towards defensive stocks as extreme, pointing to Walmart’s forward price-to-earnings ratio of around 40 times, near a record high, compared with Nvidia’s 13 times, close to a record low.

Russ Mould, investment director at AJ Bell, said equity markets appeared to be “in a state of alert”, judging by investors’ changing sector allocations.

He said these movements could create opportunities for stock pickers, highlighting the importance of sector performance in determining investment returns.

AJ Bell’s analysis of 11 major sectors within the S&P Global 1200 showed that healthcare and consumer staples were among the strongest performers in the second half of 2026, behind energy. The energy sector benefited from higher oil prices following the US-Iran conflict.

Information technology, meanwhile, shifted from the strongest-performing sector in the first half of the year, when it gained 28.4%, to the weakest in the second half after falling more than 11%.

Mould said the technology sector had moved from the top to the bottom of the performance rankings.

He added that energy, consumer staples and healthcare had remained relatively resilient, while industrial stocks had weakened noticeably. These trends could reflect persistent concerns about next year’s economic outlook and growing questions over whether the AI investment boom is losing momentum.