Market snapshot: rotation out of AI sector into these stocks

There are plenty of reasons for investors to be nervous, and tech shares are bearing the brunt of the selling. ii's head of markets has the latest.

16th October 2026 08:34

by Richard Hunter from interactive investor

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Investors continued to rotate away from the AI trade, albeit at a lesser pace, to the benefit of alternative destinations such as the Dow Jones, the bond market and stretching as far as the FTSE100, which ended more than 100 points higher Thursday.

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Tech indices nonetheless managed a small gain after a shaky start which in part was prompted by falls of almost 8% for South Korea’s Kospi and 5% for Japan’s Nikkei 225. The likes of Western Digital and SK Hynix remained on alert and Anthropic’s rumoured quarterly revenue was insufficient to placate investors, although this was partially offset by a gain of 6% for CoreWeave Inc Ordinary Shares - Class A (NASDAQ:CRWV) after its 15% plunge the previous day. There was also some solace to be found from Micron Technology Inc (NASDAQ:MU), which posted a 2% gain. Even so, the wave of capital heading over to US Treasuries increased bond prices and therefore lowered yields from their recent multi-decade highs.

Sectors outside of tech took the bullish baton, with gains of 1.5% for Walmart Inc (NASDAQ:WMT), 5% for Nike Inc Class B (NYSE:NKE) and insurance firm Marsh (NYSE:MRSH), while Bank of New York Mellon Corp (NYSE:BNY) bucked the week’s trend of poorly received banking results with a spike of over 3% after posting stronger-than-expected profits. Next week, the pace will step up with a further raft of earnings from Magnificent Seven members Tesla Inc (NASDAQ:TSLA) and Netflix Inc (NASDAQ:NFLX), as well as a variety of names including Ford Motor Co (NYSE:F), General Motors Co (NYSE:GM), American Express Co (NYSE:AXP), International Business Machines Corp (NYSE:IBM) and AT&T Inc (NYSE:T).

Following Wednesday’s hotter-than-expected Consumer Price Index reading, the Producer Price Index told a similar story, with a 1.3% increase on the month annualised to 6.3%, both of which were the highest numbers for four years. The breadth of inflation away from the obvious energy shock is of increasing concern to investors, although the consensus remains that a December interest rate hike is more likely than a move this month.

Meanwhile, the competition for capital continues to loom large, bolstered by higher bond yields which can attract investors away from equities and the large amount of debt being issued by AI companies for the infrastructure buildout, as well as rising government borrowing requirements. The intensifying demand for investor capital shows little sign of abating, although for the time being investors remain willing to satiate this debt appetite.

Having regained some poise, the main indices moved ahead, with star of the show being the Dow Jones as a result of the rotation trade, leaving the index up by 8.6% so far this year. The more tech-related indices seem to be suffering indigestion at present rather than anything more entrenched, as evidenced by gains of 13.1% for the benchmark S&P500 and of 15% for the Nasdaq in the year to date.

The FTSE100 has been a notable beneficiary of the tech turmoil elsewhere as investors seek haven alternatives, and has risen by almost 3% this week. Nonetheless, after a brisk previous session, the index has paused for breath and limped to a slightly lower open after Asia saw a slight repatriation of funds to the tech trade overnight.

The banking sector was one of the weaker performers, with Lloyds Banking Group (LSE:LLOY) leading the way after a broker downgrade. In addition, UK banks have an additional hurdle to overcome in the form of the imminent Budget. The sector has underperformed so far this year on a number of concerns, one of which is the bank surcharge. One market estimate suggests that the bank surcharge will be returned to 8% from the current 3% which in turn would reduce earnings by a possible 6%, although whatever the outcome some of the uncertainty which has been overhanging the banks would be removed. Barclays (LSE:BARC) kicks off the quarterly earnings season next week.

Overall losses were limited by some strength in the miners, which are reacting to higher copper and gold prices, while the likes of Polar Capital Technology Ord (LSE:PCT) and Computacenter (LSE:CCC) bounced back following the tech moves in Asia. The FTSE100 is currently ahead by 8.9% so far this year, with the week’s gains pushing the primary index to within 0.9% of the record closing high set in February.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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