The stock market rotation is simple. It’s about buying real stuff.
There’s a meme that often circulates among those of us who like to talk about the stock market on social media.
It shows the grim reaper going door to door and taking down different companies or industries one by one. It’s the perfect depiction of what’s been happening with the AI trade this year.
The launch of several new models have decimated software stocks. They’ve also weighed on data stocks. Then they came for financial service names and most recently transportation . So investors are buying what they don’t think will ever be behind one of those doors. Real stuff. Products we use everyday that are some sort of physical thing.
Take a look at the best-performing sectors in the S&P 500 this year. What do energy, materials, consumer staples and industrials have in common? They all sell real stuff!
Ritholtz Wealth Management CEO Joshua Brown piqued my interest in this idea during his weekly “What Are Your Thoughts” show with Ritholtz managing partner Michael Batnick. Brown describes what’s working in the stock market as “HALO” stocks (Heavy Assets, Low Obsolescence). Exxon Mobil, Walmart, and McDonald’s are a few examples.
The point is really kind of simple. If we’re worried about all the things that AI will destroy, let’s consider what it won’t. It won’t stop my dad and I from pouring a large rum and Coke on a nice summer beach day. Heck, if AI is really going to do all the things they tell us, including boost productivity and give folks some free time back, you could even make the case that the AI revolution will increase soda sales.
Coca-Cola and PepsiCo are up double digits this year. AI won’t have a beer at the ballgame for you, either (hello, Boston Beer stock up more than 25% this year). AI can’t replace your boat, either (Yes, Todd Chanko I see your Brunswick Corp. stock pick has rallied nearly 18% this year).
I picked the more fun examples, but the same could be said for things like energy that we (and the AI machines!) will keep consuming in the coming years, or real estate investments. All of these industries are hallmarks of the the Real Stuff Rotation.
This doesn’t mean we don’t all have preferences. And the concept of continued spending on real things doesn’t mean every company is a winner.
But right now it appears the prevailing market bet to start 2026 is that no matter what AI changes, Americans will keep consuming hard products. In a time of increased uncertainty, that feels like a pretty reasonable long term view.
By the way… a lot of the sectors working right now also fit into another AI theme I wrote about a few months back. They are lower margin businesses that could benefit from lower labor costs driven by the AI revolution. Check out the breakdown on that chart here.
In the Circle
At the Barron’s Investor Circle, our subscription product focuses on engaging directly with readers. We’re providing exclusive stock picks and analysis to help investors navigate the markets. This includes weekly Q&A shows where we answer audience questions live.
This week Todd Chanko talked about AI fears coming for his S&P Global pick and why some of the software selling might have been overdone.
Our senior technical analyst Doug Busch takes a look back at some previous stock picks each week to flag when the technicals start looking attractive. Since we’re talking about real stuff today, here’s his take on Crown Holdings, which among other things, manufactures soda cans.
“Notably, the very round $90 level marked the depth of the cup on Oct. 14, and provided the gap fill from April 28 that had coincided with a prior double bottom breakout. The stock is now comfortably above both its 21-day exponential and 50-day simple moving averages. Enter here, and look for a move toward $129 by mid-2026, a potential gain of 16% from current levels, while remaining bullish above $104.
Crown Holdings was trading around $112 Wednesday.”
Here are three things that caught my eyes on Barron’s this week:
🤖 Al Root dives into the “robot revolution.”
🐄 Have you noticed beef prices keep soaring at the grocery store? Jack Hough explains why with his story on America’s “cattle crisis.”
😬 Paul La Monica details why Amazon and the rest of Big Tech could be the next GE.
Your mention of Crown Holdings (CCK) hitting that "round $90 level" and looking toward $129 is a classic technical setup. However, since the "Real Stuff Rotation" is partly driven by a fear of AI disruption in other sectors:
Do you think the "HALO" trade is a permanent structural shift in how we value "boring" companies, or is it a temporary hiding spot that will evaporate once software valuations finally find a floor?