There Is a Quiet But Massive Migration Away From Tech Stocks in 2026

"In the last three months of 2025, the tech sector experienced what some called a "correction". However, the selloff was not from investors going into cash out of fear; hedge funds and other large institutional investors were, in fact, rotating out of tech stocks and into, of all things - defensive stocks. As this trend has continued through the new year into January, the following defensive stock sector ETFs may be worth keeping an eye on:"

"While the Magnificent 7 AI tech stocks have been leading the S&P 500 to stratospheric heights, a growing consensus of analysts and market watchers have been vocally public with their criticisms about stocks in the tech and AI sector being overvalued, overbought, and due for a correction. Among these parties are: Michael "The Big Short" Burry Rishi Jaluria of RBC Capital Jay Goldberg at Seaport Research Alexander Haissi of Redburn Atlantic Warren Buffett of Berkshire Hathaway"

"However, any profit taking or shorting of tech stocks didn't impact the S&P 500 proportionately, since the majority of the funds rotated into defensive stocks - companies with consistent earnings and steady growth that were not cyclical or trend oriented. As most large defensive stocks are also S&P 500 members, the tech fall offs affected the S&P 500 considerably less than indexes geared towards tech stocks or their subsectors."

Large hedge funds and institutional investors rotated out of major tech and AI names during Q4 2025 and into January 2026, moving into defensive stocks. High-profile critics labeled many Magnificent 7 names overvalued, prompting billions of daily outflows and sharp declines in leaders like Nvidia. The rotation into defensive companies with consistent earnings and steady growth reduced the S&P 500's sensitivity to the tech selloff because many defensive names are also S&P 500 members. ETFs that track defensive sectors are likely to benefit if the rotation persists, with the Invesco Aerospace & Defense ETF highlighted as one example.

Read at 24/7 Wall St.