Analysts point out that markets are in a "state of alert" as investors rotate away from riskier technology bets toward defensive stocks, according to a report.

Technology shares, the key engine that drove the stock market higher in recent years, have shown clear volatility in 2026. Concerns about artificial intelligence (AI), particularly around capital expenditure, cash flow, debt, and circular financing, have repeatedly unsettled markets this year. Last week, Democrats swept Congress in the U.S. midterm elections, adding further pressure on the sector.

As of the close on November 10, the tech-heavy Nasdaq Composite Index was up roughly 7.9% year-to-date, but it gave back some of those gains in October, falling 5.3% for the month. The index, which includes major technology companies such as Nvidia (NVDA.US), Microsoft (MSFT.US), Alphabet (GOOGL.US), and Apple (AAPL.US), has rebounded recently but remains lower in November, down 1.5% so far this month after briefly entering correction territory last week.

The Nasdaq is not the only technology index to suffer a sharp decline over the past month. South Korea's Kospi index, which is heavily exposed to the semiconductor sector, fell 16.2% in October and is down more than 6% so far this month. The MSCI World Information Technology Index dropped 7% in October and has fallen a further roughly 4% this month. The MSCI USA Information Technology Index has declined about 11% since October.

Meanwhile, defensive sector stocks have broadly rallied. MSCI indexes covering consumer staples, healthcare, and utilities sectors, widely viewed as more stable assets during periods of market volatility or uncertainty, have all posted significant gains over the past month.

Alastair Pinder, head of emerging markets and global equity strategy at HSBC, said in a Monday report that recent stock market moves have been "very violent and, in our view, overdone." Discussing the AI industry's development, he said: "The market has priced in higher implementation risk and expectations of deferred capital expenditure. The U.S. semiconductor sector has seen a 45% valuation de-rating since June, with a current 12-month forward price-to-earnings ratio of just 13.5 times. How much more bad news needs to be digested?" He added that sector fundamentals remain broadly solid.

"The rotation of capital into defensive sectors has reached an extreme," he noted. "Walmart's forward price-to-earnings ratio has reached 40 times, approaching historic highs, while Nvidia is at just 13 times, near historic lows."

Russ Mould, investment director at AJ Bell, said that based on investors' sector reallocation behavior, the stock market is in a "state of alert." In a Monday research note, he wrote: "These sector rotation signals are significant and can provide reference for stock pickers. As the old saying goes: a weak stock in a strong sector often outperforms a quality stock in a weak sector."

AJ Bell's analysis of the 11 top-level industry sectors within the S&P Global 1200 Index shows that since the second half of 2026, the energy sector has led performance, benefiting from the U.S.-Iran conflict driving oil prices higher, followed by healthcare and consumer staples.

Data shows that the information technology sector was the strongest performer in the first half, gaining 28.4% cumulatively. After entering the second half, it fell more than 11%, becoming the worst-performing sector.

Mould commented: "The information technology sector has gone from heaven to hell, from the best-performing sector to the worst."

"The energy sector has shown strong resilience, and consumer staples and healthcare have also held up well; the industrials sector has clearly weakened. These trends reflect both persistent market concerns about next year's economic outlook and investor worries that the AI bubble is deflating."