The global markets at the beginning of 2026 are undergoing a paradigm shift. According to a research report published on February 12 by Michael Hartnett's team at Bank of America Securities, capital is flowing away from the star-performing assets of recent years. Year-to-date, gold has risen 13.4%, oil has gained 9.5%, and international equities are up 8.7%. In contrast, U.S. stocks have declined 0.2%, and Bitcoin has plummeted 25%. The core driver behind this shift is "affordability" politics. The Trump administration is aggressively pivoting its policies to favor "Main Street" (ordinary citizens) over "Wall Street" (the elite). Bank of America emphasizes that this signals three critical changes:

First, a historic rotation from U.S. large-cap growth stocks to small-cap value stocks has begun. Second, the narrative around Artificial Intelligence (AI) is shifting from "AI awe" to "AI impoverishment," putting pressure on technology stocks. Third, the correlation between the Japanese Yen and Japanese equities has turned positive for the first time since 2005, a characteristic of a structural bull market. However, caution is warranted as a rapid Yen appreciation (e.g., USD/JPY breaking below 145) could trigger global deleveraging.

The rise of "Main Street" assets under "affordability" politics: The primary driver of the current market is the political response to "affordability" concerns. The report indicates that, under pressure from mid-term elections, Trump's policies have shifted towards alleviating living costs, sparking a major asset rotation from "Wall Street" to "Main Street." The winners are "Main Street" inflation-boom assets. Since late October of last year, assets benefiting from the global manufacturing recovery and inflation logic have outperformed significantly: Silver (+56%), South Korea's KOSPI index (+34%), Brazilian equities (+30%), Materials sector (+25%), Energy sector (+20%), and U.S. regional banks (+19%). (South Korean equities have seen record inflows for 4 weeks). The losers are "Wall Street" wealth-bubble assets. In contrast, previously high-flying tech giants and speculative assets have faced selling pressure. The "Magnificent Seven" stocks (-8%), Bitcoin (-41%), and software sectors impacted by AI (-30%). The essence of this rotation is the market pricing in an era where policy focus shifts from financial services to tangible manufacturing, and from capital gains to the cost of living. The report suggests that only significant policy or earnings events—such as a banking stock crash causing credit spreads to surge, AI giants cutting capital expenditures, or changes in tariffs—could potentially reverse this trend.

The shift in AI narrative: From "Awe" to "Impoverishment": Market sentiment towards Artificial Intelligence is transforming from blind enthusiasm (AI-awe) to scrutinizing its costs and disruptive impact (AI-poor). Research data shows the current AI arms race is exceedingly costly. Over the past five months, debt issuance by AI hyperscalers reached a staggering $170 billion, compared to an annual average of just $30 billion between 2020 and 2024. Their corporate bond spreads are also widening, indicating a tightening financing environment. In Q1 2025, India's tech sector became the first industry to be significantly disrupted by AI, with stock prices yet to recover. This week, the disruptive impact of AI spread to sectors including insurance brokerage, wealth advisory, real estate services, and logistics. The report argues that under the current "AI-poor" narrative, a major earnings or policy event is needed to trigger a reversal in market sentiment and capital flows, such as a major AI hyperscaler announcing cuts to capital expenditure. In the short term, such an event would likely intensify concerns about slowing capital expenditure in the AI supply chain and downward revisions to growth expectations, potentially leading to more severe sell-offs in related stocks (particularly in hardware, semiconductors, and software). However, from a market cycle perspective, such landmark events often occur at the "extreme" or "consensus" stage of a trend. When the most aggressive investors begin to pull back, it may signal the industry's transition from a phase of "unlimited investment arms race" to a new phase focused on "profitability and efficiency."

The Japanese Yen as a key to global liquidity: The movement of the Japanese Yen has become a critical variable influencing global asset pricing. Bank of America stresses that the price correlation between the Yen and the Nikkei index has turned positive for the first time since 2005, an extremely significant technical signal. Historical experience indicates that when a country's currency and stock market rise simultaneously, it often heralds the arrival of a long-term bull market, as seen in Japan (1982-1990), Germany (1985-1995), and China (2000-2008). However, the report adds that a rapid short-term strengthening of the Yen could intensify selling pressure on assets like cryptocurrencies, silver, private equity, software, and energy. More importantly, the report warns against a disorderly surge in the Yen (for instance, USD/JPY breaking below 145). Historically, sharp Yen appreciation has coincided with global deleveraging processes, which would impact liquidity in global financial markets. Consequently, the U.S. government is also unlikely to allow the 30-year Treasury yield to break above 5%, which also explains why long-term U.S. Treasuries remain the best risk-hedging tool for 2026.

The era of great rotation has arrived: Currently, Bank of America's "Bull & Bear Indicator" reads 9.4, remaining in the caution zone that triggers a "sell" signal (threshold >8). This is a contrarian sentiment indicator; a higher reading signifies more extreme market euphoria and crowded positioning, implying greater short-term correction risk. Investors should closely watch the fund manager survey data released on February 17: cash levels jumped significantly from a historical low of 3.2% to above 3.8%, bond allocations recovered from a net 35% underweight, tech stock allocations shifted from a net 17% overweight to neutral, and consumer staples allocations narrowed from a net 30% underweight. The report reviews five "Great Rotations" over the past half-century, each triggered by major political, geopolitical, or financial events. Examples include the collapse of the Bretton Woods system in 1971, Paul Volcker's inflation fight in 1980, and the Quantitative Easing following the 2008 global financial crisis; each fundamentally altered the leadership landscape of assets. The report posits that we are at the starting point of a new Great Rotation, with the leaders of the next era being emerging markets and small-cap stocks:

Small-cap value stocks outperforming large-cap growth stocks: The logic stems from the rise of populism, manufacturing reshoring, and the high costs of the AI arms race, which are unfavorable for large tech giants. If the U.S. government plans to cap the 30-year Treasury yield at 5%, this would represent a significant turning point for small-cap value stocks relative to large-cap growth stocks.

U.S. market rotation towards emerging markets: A new world order requires new bull markets. The era of U.S. dollar dominance could reverse, potentially giving rise to a "buy everything except the dollar" trade. Notably, China and India, two of the world's top four economies, remain significantly underweight in global asset allocations. Chinese bank stocks quietly reaching 8-year highs may signal that Chinese assets (banks, real estate, consumer sectors) are poised to exit deflation and embark on a "Great Rotation" from bonds to equities.