Market Rotation Accelerates as Tech Stumbles and Small Caps Lead

| By Harry Boxer, Technical Market Analyst

Tech Weakness vs. Small-Cap Strength

Major U.S. equity indexes finished a volatile week mixed, as large-cap technology stocks suffered their worst week since November while small-cap and value-oriented stocks added to their year-to-date gains. Stocks started and ended the week with rallies, helping to offset sell-offs on Tuesday, Wednesday, and Thursday. Index results varied widely; the Dow rose 2.5% and finished above the 50,000-point level for the first time, the S&P 500 posted a fractional decline, and the NASDAQ fell 1.8%.

Capitulation Signals Emerging in Risk Assets

Friday’s sharp bounce-back in higher risk areas of the market, like software and crypto, may be a signal of capitulation/seller exhaustion. We can’t be sure whether it’s a short-term oversold bounce that will give in to more selling pressure next week. It’s impossible to know at this point in time but given the healthy price action in other non-tech/crypto areas of the market, along with the 17% drop and sub-20 VIX, its possible that tech can at least stabilize from here.

Rotation, Not Market Breakdown

Up until February, stocks had largely remained insulated from the elevated volatility that currencies and commodities have been experiencing in the early days of 2026. That changed last week as the S&P 500 gave up its gains for the year, driven by broad weakness across technology, particularly software, which has fallen almost 25% over the past three months.

Even so, the S&P 500 sits less than 2% below its all-time high, and the Dow hit new all time record highs later in the week. This suggests that market action reflects rotation and repricing, rather than broad deterioration. Because of last Friday’s sharp rally back, the S&P 500 managed to only lose 0.13% but Nasdaq lost 1.84%.

Old Economy Leadership Builds

After years of tech-led dominance, the market is experiencing a meaningful rotation toward traditional “old economy” sectors. Investors appear to be gravitating toward real-asset businesses and industries that had previously fallen out of favor: oil & gas, chemicals, transportation, consumer staples, and regional banks, all of which have been outperforming since high-flying tech stocks began losing momentum late last year.

Metals Volatility Continues

Risk appetite softened more broadly last week as speculative assets came under pressure. The recent trend of heightened precious metals price volatility continued, with gold rebounding from the previous week’s decline and silver retreating. Despite gold’s weekly gain, its price of around $4,980 per ounce on Friday afternoon was well below the record of nearly $5,586 reached on January 29. Silver was trading around $77 per ounce on Friday, down from a record $121 on January 29.

In any case, as we always do at thetechtrader.com, we will “Trade What We See, Not What We Think.”
Harry Boxer, The Technical Trader
www.thetechtrader.com