Heavy Assets and Hard Infrastructure Outshine Silicon Valley in 2026’s Market Shake-Up

Tech’s slump is changing where capital goes. With the Magnificent 7 all in the red this year, some of the shine has come off AI-heavy trades. Investors are rotating into tangible, low-obsolescence assets — the “HALO” trade — and Morgan Stanley expects this shift to last through year-end, setting up a rare reordering of the market.

Following the trade: Morgan Stanley’s chief US equity strategist Mike Wilson says this isn’t a short blip but part of a broader shift. Capital spending growth for the median stock hit 10% by Apr. 2025 — the strongest since 2023 — hinting that a new investment cycle is underway. Firms with high capex-to-sales ratios have been leading since mid-2025, with multi-industry and materials stocks quietly outperforming for months. Momentum picked up in January when hedge funds bought industrial stocks at their fastest pace in a decade, driven by fresh long positions.

• Demand for AI infrastructure is now boosting heavy equipment makers — CaterpillarCAT
  is up 19.9% over the past month, while Custom Truck One SourceCTOS
  and OshkoshOSK
  are up 15.9% and 11.9%, respectively.
• The Schwab Center for Financial Research ranks Industrials as Outperform over the next 6–12 months, alongside Communication Services and Health Care.

The Conglomerates Strike Back

Policy tailwinds are adding fuel. Capex tax breaks in the One Big Beautiful Act — combined with broader efforts to push investment — are driving demand tied to AI buildouts, lifting materials, energy, and equipment firms. Wilson points to diversified names like HoneywellHON

, DoverDOV

, and Johnson ControlsJCI

as clean ways to tap into the trend. Meanwhile, the gap with tech keeps widening — the iShares Expanded Tech-Software Sector ETF is down 23.3% year-to-date despite rising earnings estimates, while old-economy names like Coca-ColaKO

and Johnson & JohnsonJNJ

are climbing to record highs.

• So far in 2026, energy stocks are leading with 22% gains, followed by materials at 18% and consumer staples at 15% — all well ahead of a flat S&P 500.
• Regional banks are also being flagged as another “underappreciated winner” as commercial and industrial lending picks up, pushing the SPDR Regional Banking ETFKRE
  up 9.6% YTD.

Building on solid ground: Goldman Sachs noted that “given the rapid progress of AI technology, recent investor conversations have focused on the challenge of translating near-term profit strength to uncertain long-term growth outlooks.” Erlen Capital’s Bruno Schneller echoes the sentiment, saying the surge in flows “signals hedge funds are no longer making a short-term tactical bet, but positioning for a broader reacceleration in global growth and capital spending.” Taken together, AI infrastructure demand, reshoring, and rearmament are creating multiple tailwinds that could keep heavy assets outperforming even as the trade becomes more crowded.