How 'HALO' trade is pushing hard-asset stocks ahead of Big Tech

The first weeks of 2026 have delivered an unexpected shift in US equity markets, with traditionally defensive and asset-heavy sectors outperforming technology.

All members of the so-called Magnificent Seven have slipped into negative territory for the year, while consumer staples, energy and materials have emerged as market leaders.

Consumer staples have gained around 15% year-to-date, placing them among the top three performing sectors.

Energy has risen about 22%, while materials are up roughly 18%.

By contrast, software stocks have struggled, weighed down by fears that artificial intelligence could disrupt established business models and compress margins.

AI spending worries weigh on tech

Concerns over whether massive AI investment can be justified have unsettled investors in large-cap technology.

Heavyweights such as Meta Platforms, Microsoft, Alphabet and Amazon have all come under pressure, as questions grow over returns on capital spending.

The knock-on effects have been felt most sharply in software.

The iShares Expanded Tech-Software Sector ETF is down more than 23% so far this year, despite a modest rebound late last week.

Chipmakers, including those exposed to AI demand, have also faced bouts of volatility as investors reassess growth expectations.

'HALO' trade helps some Dow stocks hit record highs

In contrast, companies tied to physical assets and industrial activity have benefited from a rotation into what some investors describe as the HALO trade, shorthand for hard assets and low obsolescence.

The trade has helped Dow components such as Caterpillar, Coca-Cola and Johnson & Johnson have hit record highs recently.

Caterpillar has been one of the biggest drivers of the Dow this year, reflecting strong demand for equipment linked to construction, energy and infrastructure.

However, some market strategists caution that this type of leadership has historically coincided with late-cycle market phases.

Jay Woods, chief global strategist at Freedom Capital Markets, said sectors such as energy and materials often lead near market tops, making them an unusual foundation for sustained rallies.

"These sectors tend to lead near market tops, hence not 'good' leadership," he said in a MarketWatch report.

The obvious danger may be that if AI-related tech were to start picking up steam again, then the HALO trade may falter.

Morgan Stanley sees staying power

Mike Wilson, chief US equity strategist at Morgan Stanley, however, argues that the outperformance of non-digital sectors is likely to persist through 2026.

In a recent note, he said the trend has been building for months rather than weeks, with capital-intensive industries outperforming since mid-2025.

"For example, Multi-Industry and Materials/Metals have outperformed for months...the high capex-to-sales factor has outperformed across the market since the middle of last year, supporting this theme," Wilson says.

Wilson points to three drivers underpinning the move.

Cyclically, a new business and earnings cycle began in April 2025, with median capital expenditure growth at its strongest since 2023 at 10%.

Structurally, materials and energy firms, along with industrial groups, are benefiting indirectly from the AI buildout through demand for power, metals and infrastructure.

Lastly, policy support, including capital expenditure tax incentives and a broader push to rebalance the economy toward investment, adds a further tailwind.

"Multi-Industry remains the best pure-playacross these themes," he says, citing conglomerates such as Honeywell, Dover Corporation and Johnson Controls.

Wilson also said regional banks could be an underappreciated beneficiary as commercial and industrial loan growth picks up.

The SPDR S&P Regional Banking ETF has gained about 10% so far this year, reflecting renewed optimism around lending activity.