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.