Whether it’s truly better to be lucky than good, it’s undeniably best to be both whenever possible. The S & P 500’s bumpy path to a 1.3% gain in the year’s first five weeks surely shows impressive resilience among risk-seeking capital staying engaged in the equity market — while also reflecting plenty of good fortune. A bit lucky that the collective mini-panic over the downside of AI-driven disruption has struck in one of the seasonally strongest parts of the year with unusually massive net investor inflows, following three strong annual gains. It’s likewise fortunate that the fiscal taps are wide open everywhere, supporting high nominal global growth, while in the U.S. last year’s tax revamp should goose real GDP by almost a percentage point. And is it also a convenient break – for the markets, not for workers – that while most economic indicators have begun heating up, the labor market alone appears stalled, leaving the Federal Reserve more dovish than it otherwise would be given the overall pace of growth? This entire blend of fitness and fortune has propelled an aggressive, high-velocity rotation within the market that has (so far) successfully broadened the leadership and awakened long-dormant sectors, while leaving the headline S & P 500 supported but stuck just under the 7000 threshold since late October. The catchphrase of this rotation has been “out with the new, in with the old.” The year-to-date performance in the major indexes runs in chronological order of their invention: The Dow Jones Industrial Average up 4.3%, the S & P 500 up 1.3% and the Nasdaq Composite down 0.9%. Investors are selling 21st century “innovators” to buy 19th century businesses. They’re rushing away from technology, where a company’s entire competitive advantage is lines of code that could fit on a thumb drive and embracing asset-heavy producers of scarce physical necessities. Caterpillar over Microsoft The Dow’s path to its first close above 50,000 on Friday illustrates this story nicely. The venerable but notoriously quirky price-weighted index has added 2,052 points so far this year. Caterpillar, maker of enormous machines including the generators needed for AI data centers, has kicked in 985 points to the Dow by itself. That’s almost as many points as the declines in software stalwarts Microsoft (529) and Salesforce (472) have together cost the Dow this year. Energy is the best S & P 500 sector in 2026, as John D. Rockefeller cheers from the beyond. Railroads as a group have jumped 13% in the past two weeks. The agricultural-products subsector of the S & P 500 basic-materials sector consists of Bunge Ltd. (founded in 1818) and Archer-Daniels-Midland (started in 1902 by two guys born in the 1850s), and it has gained 19.8% since Dec. 31. This all comes off as quite wholesome and healthy and refreshing to the large group of investors who spent the past three years bemoaning the increasing concentration of market value in a small cluster of AI-chasing tech platform giants. And, all else being equal, it’s a plus to see the index fitfully rebalancing itself as money shifts toward a reflationary cyclical theme. The concerns, such as they are, surround just how much growth and valuation support Old Economy sectors will be able to provide from here. A related but separate issue is the internal market extremes in positioning and volatility that are being generated by the mad stampede into and out of various sectors and investment factors (such as momentum, value, beta and earnings revisions). Let’s observe, first, that large-cap value stocks do not look cheap. The forward price-to-earnings multiple of the S & P 500 Value ETF (IVE) is now above 19 for the first time in memory – possibly the first time ever outside of recessions where profits have collapsed. Granted, valuation expansion is the market’s way of anticipating earnings acceleration, perhaps beyond what analysts have forecast. So as long as the earnings continue to outpace estimates there may not be much payback in the near term. But if nothing else it means value-over-growth is hardly an undiscovered opportunity. Zooming in a bit closer, as of about two weeks ago, the S & P industrials sector now carries a higher valuation than technology, something that has only happened a few times for brief periods in recent decades. Again, this is the market’s way of migrating from sectors with too much capacity facing a glut (software creation can become cheap and infinite with AI) to those with multi-year production constraints (gas turbines, jet engines, electrical gear). Deutsche Bank strategists on Friday flagged the headlong stampede of investor cash into non-tech sector funds to capture this long-promised, now-underway rotation: “Sector funds excluding tech have seen a record $62 billion in inflows in the first five weeks of the year. To put that in context, that’s more than they saw in all of 2025 (just over $50bn). Relative to the normal pace historically, the inflows year to date are running almost 4 standard deviations above average.” Meantime, outflows both from both software and crypto (an asset class most correlated with unprofitable tech stocks) grew excessive until the savage software/bitcoin selloff hit an extreme Thursday, when money came sloshing in to catch the falling knives. Software washout Software was uniquely vulnerable to any perceived threat from AI given the entrenched assumptions of the sector’s investor base. Software-as-a-service was built to Wall Street specifications as a subscription business embedded in crucial business and consumer processes whose annual recurring revenue streams would stretch decades into the future. Oh, and if SAAS firms falter a bit, they were seen as ideally suited to be taken private by buyout firms who love those long-lived cash-flow streams to service debt. Now private-capital stocks have been smashed due to software exposure (right or wrong it surely reduces the “LBO bid” cushion). Many of the big software platforms – Salesforce, now under a 15 P/E or ServiceNow, with a record-high 5% free-cash-flow yield – have a decent counter-argument to the bears. But as Goldman Sachs head of hedge-fund coverage Tony Pasquariello notes in a weekend market dispatch, “The question is whether this cohort can convince investors that it’s not as fundamentally challenged as the recent de-rating would suggest it is… Once the market makes its mind up that something has structurally changed, it becomes increasingly hard to fight the tape and break that perception (witness legacy media or brick-and-mortar retail).” The setup involving massively oversold parts of tech, a buying panic in some non-tech areas (Walmart has raced to a 43x forward P/E) gets to the extremes that have been developing across asset markets. These include never-before-seen outperformance of semiconductors over software, the U.S. dollar near a four-year low and multi-decade highs in silver-over-gold prices. Over the ten days preceding Friday’s bounce, Barclays tactical equity strategy desk says the internal whipsaw action of the market – measured as the realized volatility among major investment factors – reached an extreme only seen near last year’s Liberation Day panic, the peak of the 2022 rate-hike/recession scare and during the Covid crash. And yet the S & P 500 itself suffered less than a 3% pullback and the CBOE S & P 500 Volatility Index (VIX) made only a brief pop toward 23 before receding late in the week. “The point being,” Barclays said, “that the market effectively ‘crashed’ without the typically symptomatic correlation one drawdown.” Sounds like a lucky break. Can investors stay lucky? Assuming the urgent momentum-reversal action of last week is through, that is. Whenever these urgent hedge-fund risk-reduction events occurs, brokerage houses try to handicap how much more repositioning might be necessary to bring their posture back toward a neutral footing, like different hurricane models trying to forecast a storm’s path. Last year, a similar episode triggered by the potential DeepSeek threat to U.S. AI companies sent the iShares Momentum ETF collapsing relative to the S & P 500 Low-Volatility basket. This drop was quickly recovered within a week, went on to further new highs, before in mid-February another momentum positioning shock struck. This is all to provide some context around any confident predictions that current rotational trends can proceed harmlessly from here. February need not be a tough month, but notable tactical peaks in the high-momentum parts of the market occurred after strong preceding years in 2018, 2020, 2021 and 2024. The S & P 500 has been thwarted on any attempts to surmount those late-October highs, and the Vanguard Total Stock Market Fund is flat the past two months, when seasonal factors have been supportive and earnings continuing to rise. Still, those earnings gains mean the broad market’s valuation has ebbed since October. The rest of the world is a big help, too: FactSet says that in the fourth quarter, S & P 500 companies with more than half their revenue coming from overseas have posted an average of 17.7% growth, compared to 10% for firms with more than 50% domestic sales. It’s tough for the economy to get into too much trouble with a capital-spending boom raging, record corporate margins and a Federal deficit running near 6% of GDP. So far, too, Treasury yields are tame and public corporate debt spreads unperturbed. Plenty of good things going on, for sure, but worth asking how many have been priced in and how long the market can keep avoiding unlucky breaks.