Up until last Friday, the US market has been all IT, all the time. Year to date, the IT sector is +16.9%, with the market ex IT at +3.1%. Semiconductors have been a stunning +42%. For the past twelve months, the figures are +43.6% for IT and +15.1% for everything else. So, at some point the losing team was bound to get a turn at bat–purely on relative valuation.

As I see it. the administration’s economic plan is taken right out of the emerging markets handbook written by post-WWII Japan:

–depress the currency

–use tariffs to discourage imports of foreign goods

–keep interest rates low

–develop export-oriented manufacturing as the main source of economic growth.

Yes, the current generation will have miserable lives …but children and grandchildren will enjoy the benefits of being in the advanced industrial economy built on the ruins remaining after the destruction of WWII.

One other thing, foreigners (creatures that emerge from the darkness) not particularly welcome.

The administration has added two twists to this program:

–reducing the domestic workforce by using ICE to imprison and deport foreign-born workers

–seizing forcing oil reserves and shutting down alternative energy projects, effectively a huge bet that climate change isn’t really happening, and being made for reasons best known to the administration.

All in all, this is a recipe for economic stagnation, in my view. This has also become the consensus belief, I think, that has been expressed in the massive portfolio shift away from stocks dependent on the US economy and to IT. Initially, the focus was mostly on software, especially AI-related. Recently, it has shifted to the components needed to build AI centers. This is partly the way that rotation within an industry generally works. In this case, the stock market has also come to believe that AI will force down the prices of many software services.

Then came Friday’s jobs report, which showed that the economy gained +172,000 jobs, vs. expectations of +80,000. The prior two months’ numbers were revised up by a total of +93,000. This apparently sparked two worries:

–that the domestic economy is in better shape than the consensus is expecting, and

–that interest rates may need to rise to cool down economic growth.

This would have two implications for equity portfolio positioning:

–the left for dead domestic economy might actually have some life in it. I don’t see much evidence other than this report. But jobs are a leading indicator. And if so, a heavy bet against the general economy that the current market is expressing might not be the slam dunk the consensus believes

–rising rates would mean PE multiple contraction, as fixed income becomes a more attractive alternative to stocks

The counterargument would presumably be that the job additions are positions that were previously held by undocumented workers who have been imprisoned or deported.

\The most important thing for you and me today, I think, is to observe what is rebounding and, just as important, what is either not going up or moving up at a much sharper/slower pace than the decline last Friday.

Tech consists in two separate S&P 500 sectors–Communication Services and Information Technology, The two were the stars of 2025, with the former outpacing the latter by +32% to +23%.

Both got off to a rocky start in the early part of this year. The simplest explanation is that the economic environment became less certain, so stock investors began to trim their equity holdings. And they sold what they usually sell in the first quarter, as well as in situations like this–things that had gone up a lot in the prior year.

There has been a substantial shift in emphasis within tech. It’s away from Communication services and toward IT. Another way of putting this is that it’s away from software toward hardware.

And it’s not just cutting edge hardware. It’s also fresh-out-of-Chapter 11 highly specialized chip maker, Wolfspeed; DRAM makers like Samsung, Hynix and Micron; and even old-school contract manufacturers. That’s in addition to last year’s stars, like the fabless chip designer, Nvidia. The market has also been nibbling away at companies with AI installation heat-reduction solutions. even to toilet maker TOTO.

–I should mention that I own shares of WOLF, MU and NVDA (on the idea that it’s sort of like an AI ETF, only run by deeply knowledgeable insiders) and TOTO. I have recently sold about half my MU position, though, and have been trading the very high volatility of WOLF, without changing my overall holding much. Strictly speaking, this last is a waste of time, but I find it entertaining.

Anyway, the market has rotated from software to hardware, and in hardware from the obvious to the esoteric to tech adjacent.

What happens next?

Here, no one really knows. So we all make guesses. Here’s mine:

–I think DRAM is a special case. This is an industry plagued by chronic overcapacity. Not now, though. The major players are all working flat out. Despite this, DRAM prices have shot through the roof, because demand is so much higher than supply. New capacity is unlikely to be onstream for at least a couple of years. Ultimately, situations like this end up in product gluts, sharply lower selling prices and ugly share price action. Some people are arguing to take action now. On the other hand, it’s very hard, in my experience, to predict the level of earnings three years out, as well as when the market will begin to take a 2028-29 potential glut seriously.

–for the rest, the market has rolled away from the most direct plays on the AI future to increasingly peripheral ones. This is typically a signal that the current winning sectors are beginning to get long in the tooth.

I think the obvious next move for US market-oriented investors would normally be to Consumer discretionary and staples, as well as other areas sensitive to domestic economic growth.

However, tariffs, weakening the currency, shrinking the workforce, loss of tourism and higher gasoline prices have all damaged the domestic economy. And, to my mind, ICE has certainly damaged the domestic brand name, and hence the global appeal of US company brands. At one point, I thought that foreign corporations would use this period as an opportunity to buy beaten down consumer-oriented firms–especially in the staples sector–with valuable brands built through decades of advertising expense. But that hasn’t happened.

(An aside: the value of intangibles like brand names and distribution networks, which are counted on the balance sheet and income statement as minuses, are, I think, Warren Buffett’s major contributions to equity investing).

As a result, it seems to me that investors, both domestic and foreign, portfolio investors and corporations, are going to mostly sit on their hands until there are clearer signs that citizens want the current domestic economic malaise to change.

As I’m writing this, I’m realizing that it probably isn’t too early to develop a shopping list of consumer firms to buy. Walmart (WMT) is the only consumer name I own–over half of TOTO’s profits now come from tech–so I should get ready to do more.

I’ve just updated my Keeping Score page for May. IT is the positive side of the performance story. For the moment, at least, currency isn’t an issue, because the market seems to believe that the Fed will resist the administration’s demand for lower interest rates. The negative side, which is defined by serial laggards, continues to be the domestic demand weakness caused by tariffs and ICE-induced shrinkage of the workforce.

One or more of three things can happen when the market is finished rotating through all the possible beneficiaries, direct and indirect, from a given powerful positive economic force. The market can:

–begin the whole process of revaluing upward all the winners from the current theme. In the case of AI, this would probably start with a revaluation of Nvidia,

–move on to another big idea. This could be, for example, export-oriented manufacturing, or reignition of consumer spending or…

–assume a defensive posture and begin to sell off–beginning what market watchers euphemistically call a “correction”–on the belief that there’s nothing with significant upside potential left to buy at today’s prices.

I’m writing this about 15 minutes after the New York market open. Although one can’t put very much weight on the message from very short-term indicators, a reasonable (to me, anyway) guess is that this morning’s winners will give a useful picture of what a correction might look like.

One, probably too simple, way of looking at market rotation is that one group of stocks, for whatever reason, goes up sharply while other sectors languish. At some point, the valuation difference between the to-date winners and losers becomes so great that investors switch from the now-expensive stocks to the too-cheap.

In today’s US market, on the other hand, it has been all tech, all the time. Over the past year, for example, the IT sector is +54.5%. Ex IT, the S&P 500 is ahead by +18.1%. So far this year, IT is +20.1%. Ex IT, the S&P is +4.4%.

Micron (MU), a memory chip maker, has more than tripled since January 1. It was up by just under 20% yesterday, on news of a sharply upwardly revised brokerage house earnings estimate for this year. It’s ahead by almost 10% in the pre-market, as I’m writing this (I own shares of MU and have been scaling back recently, because the position has gotten bigger than I feel comfortable with).

On the other hand, consider Nvidia (NVDA), which is the leading light in the AI chip market. It is up so far this year, but only by about +15%. That’s better than the S&P’s +9.8%, but not by that much–and less than the IT sector as a whole.

My interpretation:

–there is rotation in the US market, but it’s either within the tech sector or from domestic tech to non-US companies

–the rotation away from NVDA is based on relative valuation and on two company-specific factors: Washington’s restrictions on exports and the loss of operating leverage as salaries shrink as a portion of operating expenses. (I’ve recently bought back some of the NVDA I sold last year (to rotate into AVGO, which I have since sold), on the idea that NVDA is now a closed-end investment company).

–the other rotation I see is from the US to the rest of the world, because even typically meh eps growth prospects there are better than we can expect from the US.