Why Tech Stocks Are Lagging and What’s Catching Fund Flows

After years of tech leadership, 2026’s market performance is showing a notable shift in where investors are allocating capital.

Tech stocks — especially large-cap names that had dominated returns — have underperformed recently, and money is beginning to flow into other parts of the market.

That’s not just noise. Multiple market indicators and fund flow signals point to a rotation that’s gaining steam.

The Big Idea

For much of the post-2022 rally, technology companies — particularly those tied to artificial intelligence and cloud infrastructure — were the primary drivers of stock market gains. In early 2026, that dynamic has shifted.

Several trends are visible:

Tech under pressure: Major tech names have lost significant market value as expectations around A.I. profitability and future growth have been re-priced. Microsoft, Amazon, Apple, Alphabet, Nvidia and others have seen valuation declines that wiped out hundreds of billions in market cap.

Investor rotation: Wall Street strategists and fund managers report capital moving away from the largest tech firms and into sectors that have lagged, such as energy, industrials and consumer staples. Several recent market wrap-ups show technology shares lagging while other sectors outperform.

Broader participation: Money isn’t just fleeing tech for cash. Small- and mid-cap stocks, value-oriented names and non-tech sectors are seeing relative strength. This under-the-surface breadth can indicate a rotation rather than a pure sell-off…

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This behavior doesn’t necessarily signal a fundamental collapse in tech earnings, but it does reflect investor reassessment of where returns are likely to come from next, especially as the A.I. narrative becomes more nuanced and earnings growth is scrutinized more closely.

Market Reaction So Far

In practice, the rotation shows up in a few measurable ways:

• Tech-heavy indexes like the Nasdaq and growth names have lagged, weighing on major benchmarks.
• Sector indexes tied to energy, materials and industrials have outpaced tech year-to-date, narrowing performance gaps.
• Equal-weight versions of major indexes — which reduce concentration in the largest names — have held up better, suggesting broader market strength outside tech.
• Investor sentiment has shifted from pure A.I. enthusiasm to a more balanced view that weighs profitability and valuation.

Quick Hits

• Major tech stocks have lost significant market capitalization as valuations are repriced.
• Fund managers report capital rotating away from dominant tech names.
• Investors are favoring energy, industrials, consumer staples and value sectors.
• Equal-weight and small-cap benchmarks have outperformed cap-weighted indexes.
• The shift reflects sentiment changes around A.I. growth and risk allocation.

What This Means for You

If you’ve been watching markets this year, you’ve likely noticed that tech isn’t leading, and other areas are catching up. That doesn’t mean tech is “broken,” but it does signal a broader market dynamic.

Rotation like this often happens after a period where one sector dominates returns. Investors then begin seeking diversification and valuation opportunities elsewhere, especially when growth narratives become more uncertain and earnings expectations get tested.

For everyday investors, the key takeaway is not necessarily to abandon tech, but to recognize that other sectors are showing relative strength — particularly those tied to traditional economic activity or value characteristics. Markets are balancing growth stories with risk management, and flows reflect that shift.

Bottom line: As of Feb. 22, 2026, money is noticeably rotating out of large-cap tech and into a broader array of sectors. This trend reflects changing investor expectations around growth, valuation and risk, and it’s showing up in performance patterns across indices.

Until next time,

The Shortlysts Team

Sources: Reuters; Yahoo Finance; Morningstar; Morgan Stanley.

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