Wall Street Leaders Swap Places as AI Worries Weigh on Tech Stocks

what happened

Barron's says sector leadership on Wall Street has flipped after the midterm elections. Energy and technology had driven the S&P 500 for most of the year, but over the past month consumer staples, healthcare and real estate, which had trailed, moved to the top of the index.

Information technology, which had been up 31% a month earlier, has seen its gain shrink to under 10%, while communication services has slipped into a 10.3% loss for the year. Financials and utilities have recovered, and energy, still the strongest sector this year, has pulled back.

Analysts link the move into safer assets to growing concern about AI capital spending and expectations of Democratic wins at the polls. Evercore ISI noted that campaign promises about data centers could matter a great deal, since those facilities have become a major driver of US nonresidential construction. Tech and communication services together make up about 45% of the index, so their decline over the month pulled the S&P 500's year-to-date performance down by more than six percentage points.

why it matters

This matters for investors because a large share of the index sits in these two sectors, so their slide can shift the whole S&P 500. Barron's also points to a long pattern: the stock market has risen in the six months after every midterm election since 1950, whatever the result.

market impact

US stocks: weakness in IT and communications drags the S&P 500 lower, while defensive sectors gain support.

• ▼US technology sector pressure down — concern about AI spending is weighing on IT and communication shares
• ▲US defensive sectors (staples, healthcare) pressure up — investors are rotating into safer holdings

instruments

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