Tech stocks like Microsoft, Amazon, and others have seen a significant drop of up to 50% from their 2025 highs. Despite this, the broader market has remained resilient, with the S&P 500 only 2% below record levels. Capital has rotated towards other sectors like energy and industrials, suggesting a shift in market leadership.

The recent market rotation seems more cyclical than structural, driven by concerns about AI overspending and stretched valuations in the technology sector. Rising uncertainty about Fed leadership also played a role. However, the economy remains stable, and the recent correction has reset valuations among market leaders, potentially improving future returns.

Investors should consider positioning for the next phase by focusing on healthcare, biotech, industrials, and energy companies that are tied to durable growth trends. Opportunities may also exist in former technology leaders now trading at more compelling valuations. Balancing exposure between former winners and new leaders can be more effective during market rotations, which often extend bull markets rather than ending them.

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