AI's ability to generate software at near-zero marginal cost is erasing the scarcity premium that propelled software stocks for over a decade. This realization is causing a massive capital rotation out of software ETFs and into tangible, scarce assets like metals and commodities.

While large-cap tech stocks are showing weakness, cyclical sectors like small caps, consumer discretionary, and restaurants are breaking out. This suggests capital is flowing from concentrated, high-valuation names to broader, economy-sensitive assets, indicating a significant shift in market leadership.

The strong performance of biotech stocks in late 2025 wasn't solely driven by sector-specific news. A significant factor was a macro-level rotation of capital from generalist investors moving money out of cooling AI and tech stocks and into the undervalued healthcare and biotech sectors.

The dominant investment theme is shifting. For two decades, capital favored intangible assets like fintech and cloud computing. Now, investors are rotating into 'real things' with significant supply constraints, representing a complete reversal of the prevailing trend.

The market's recent strength is not being driven by the mega-cap MAG7 stocks, which are underperforming. Instead, leadership has rotated to sectors like basic materials, healthcare, industrials, and financials. The breakout in the equal-weight S&P 500 confirms this widening breadth is occurring under the surface.

With the Federal Reserve signaling a market backstop, capital is flowing from concentrated large-cap tech winners into more cyclical, under-loved small-cap stocks (IWM). This support de-risks 'Main Street' sectors and signals a potential broadening of the market rally.

After years of piling into a few dominant mega-cap tech stocks, large asset managers have reached a point of peak centralization. To generate future growth, they will be forced to allocate capital to different, smaller pockets of the market, potentially signaling a broad market rotation.

Following a dovish Fed meeting, the outperformance of small-cap stocks (IWM ETF) versus large-cap tech is the key signal of a healthy, broadening market rally. This indicates capital is flowing beyond mega-cap names into the wider economy, confirming a "game on" sentiment for risk assets.

Fears that AI will render software and other tech industries obsolete are driving a significant capital shift. Investors are selling tech stocks and buying into sectors perceived as immune to AI disruption, such as energy, construction, and consumer staples. This rotation explains the recent underperformance of tech-heavy indices.