When Wall Street left the AI party and went back to Main Street
US stocks are in the middle of a big shift: money is quietly rotating out of the flashiest AI names and into old‑school sectors like banks, factories and materials, plus long-ignored small caps.
When the AI party got too loud
For most of 2025, the US market felt like one long AI trade. Nvidia, hyperscalers and data‑centre plays dominated headlines, while the S&P 500’s gains were heavily concentrated in a handful of mega‑caps. Then, late in the year, the mood cracked.
An earnings update from Oracle was the turning point. The company warned on heavy AI‑related capital spending and spooked traders who had convinced themselves every dollar of AI investment would drop straight to the bottom line. Oracle sold off, and suddenly investors started asking whether they were paying 2028 prices for 2025 profits.
“The market is clearly re‑rating the AI story,” one strategist at a major US bank told Reuters. “The narrative has run ahead of the cash flows, and that gap always closes eventually.” Fortune captured the same feeling in a different way: analysts said the rotation “out of AI is just getting started”, with money flowing towards materials, industrials, financials and healthcare instead.
You can see the change in the sector tape. On a recent session, eight of the S&P 500’s eleven sectors traded higher, led by materials, financials and industrials, even as communication services slipped. Technology no longer looked like the only game in town; it looked like one game among many, and a crowded one at that.
The quiet comeback of Main Street stocks
Behind that rotation sits a deeper story: the comeback of smaller, more “real world” businesses after years in the shadow of mega‑caps. For much of the run‑up to April 2025, the Russell 1000 – dominated by the giants – trounced the Russell 2000, which barely moved. But as rate‑cut hopes firmed and recession fears eased, the balance started to change.
Small‑cap earnings finally turned positive in 2025, after what one Goldman Sachs report called a “two‑year earnings recession”. Roughly a quarter of Russell 2000 companies have now delivered at least two straight quarters of accelerating earnings, a key sign that the improvement is not just a one‑off bounce. Franklin Templeton’s Royce team notes that small‑cap growth has led at several points in the upswing, while small‑cap value has kept pace – an unusual but encouraging mix for stock pickers.
Bank of America strategist Michael Hartnett went so far as to label it a shift from a “Wall Street trade” to a “Main Street trade” – out of a narrow group of mega‑cap AI winners and into mid‑ and small‑cap names across the broader economy. “More importantly, we foresee this rotation in the early stages with relative valuations remaining attractive,” added Teal T. Royce, arguing that falling short‑term rates should particularly help smaller companies with floating‑rate debt.
That leaves the US market in an interesting place as the year winds down. AI is not dead, far from it – but it no longer carries the whole index on its shoulders. Instead, a more balanced market is emerging, where banks, builders, manufacturers and smaller regional names finally get a look‑in. For long‑term investors, especially those watching from abroad, this rotation may be the quiet plot twist that matters more than the headline index hitting another hig
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage companies, and not of Winvesta. We advise investors to check with certified experts before making any investment decisions.
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US stocks are in the middle of a big shift: money is quietly rotating out of the flashiest AI names and into old‑school sectors like banks, factories and materials, plus long-ignored small caps.
When the AI party got too loud
For most of 2025, the US market felt like one long AI trade. Nvidia, hyperscalers and data‑centre plays dominated headlines, while the S&P 500’s gains were heavily concentrated in a handful of mega‑caps. Then, late in the year, the mood cracked.
An earnings update from Oracle was the turning point. The company warned on heavy AI‑related capital spending and spooked traders who had convinced themselves every dollar of AI investment would drop straight to the bottom line. Oracle sold off, and suddenly investors started asking whether they were paying 2028 prices for 2025 profits.
“The market is clearly re‑rating the AI story,” one strategist at a major US bank told Reuters. “The narrative has run ahead of the cash flows, and that gap always closes eventually.” Fortune captured the same feeling in a different way: analysts said the rotation “out of AI is just getting started”, with money flowing towards materials, industrials, financials and healthcare instead.
You can see the change in the sector tape. On a recent session, eight of the S&P 500’s eleven sectors traded higher, led by materials, financials and industrials, even as communication services slipped. Technology no longer looked like the only game in town; it looked like one game among many, and a crowded one at that.
The quiet comeback of Main Street stocks
Behind that rotation sits a deeper story: the comeback of smaller, more “real world” businesses after years in the shadow of mega‑caps. For much of the run‑up to April 2025, the Russell 1000 – dominated by the giants – trounced the Russell 2000, which barely moved. But as rate‑cut hopes firmed and recession fears eased, the balance started to change.
Small‑cap earnings finally turned positive in 2025, after what one Goldman Sachs report called a “two‑year earnings recession”. Roughly a quarter of Russell 2000 companies have now delivered at least two straight quarters of accelerating earnings, a key sign that the improvement is not just a one‑off bounce. Franklin Templeton’s Royce team notes that small‑cap growth has led at several points in the upswing, while small‑cap value has kept pace – an unusual but encouraging mix for stock pickers.
Bank of America strategist Michael Hartnett went so far as to label it a shift from a “Wall Street trade” to a “Main Street trade” – out of a narrow group of mega‑cap AI winners and into mid‑ and small‑cap names across the broader economy. “More importantly, we foresee this rotation in the early stages with relative valuations remaining attractive,” added Teal T. Royce, arguing that falling short‑term rates should particularly help smaller companies with floating‑rate debt.
That leaves the US market in an interesting place as the year winds down. AI is not dead, far from it – but it no longer carries the whole index on its shoulders. Instead, a more balanced market is emerging, where banks, builders, manufacturers and smaller regional names finally get a look‑in. For long‑term investors, especially those watching from abroad, this rotation may be the quiet plot twist that matters more than the headline index hitting another hig
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage companies, and not of Winvesta. We advise investors to check with certified experts before making any investment decisions.
Ready to earn on every trade?
Invest in 11,000+ US stocks & ETFs