Tech stocks are no longer the market’s primary drivers—however, investors have avenues to shield their holdings during periods of instability.
After years where the market hinged upon the future promise of soaring productivity, shares in the technology and artificial intelligence sectors have seen a downturn. It has been four months since the tech-heavy Nasdaq Composite peaked. Both the S&P 500 and the Nasdaq just posted their worst monthly performance since March.
Meanwhile, stocks with less direct involvement in AI advancements are gaining ground. The broad Dow Jones index, which has less tech exposure than the Nasdaq and the S&P, has appreciated by 1.9% year-to-date. The S&P 500 index has risen by 0.49% over the year, whereas the Nasdaq has declined by approximately 2.5%.
This situation reflects a broader shift occurring on Wall Street as it navigates the current AI turbulence. Nvidia (NVDA), a star player in the AI narrative, experienced its worst trading day since April on Thursday, despite reporting strong quarterly figures.
Concerns that AI disruption could undermine existing business models continue to severely impact software companies. Furthermore, persistent unease exists regarding the massive expenditures major tech firms are making on data centers and uncertainty over whether these hundreds of billions in investments will actually yield returns.
Nevertheless, analysts and portfolio managers suggest that investors should hold off on succumbing to this nervousness for the time being, pointing to emerging market dynamics that could create fresh opportunities.
The broader market generally trends upward over extended periods, which contributes to the high average annual return of the S&P 500. This implies that long-term holders of indices like the S&P 500 can often afford to disregard short-term price swings.
U.S. equities concluded Friday lower, with the Dow dropping 521 points, a 1.05% decrease. The S&P 500 fell by 0.43%, and the technology-focused Nasdaq lost 0.92%. Wall Street’s volatility gauge, the VIX, increased by 8%.
The yield on the 10-year Treasury note dropped below 4%, reaching its lowest level since October as investors rotated into bonds. Oil prices surged more than 2% amid ongoing geopolitical tensions involving the U.S. and Iran.
Almost 40% of the S&P 500’s valuation is concentrated in mega-cap tech names such as Nvidia, Microsoft (MSFT), and Alphabet (GOOG). Concerned equity holders might consider reallocating their assets or seeking sectors less exposed to the AI narrative.
“Investors might find themselves significantly overweight in technology exposure without even realizing it,” noted John Ulin, Managing Director at Ulin & Co Wealth Management.
Apprehension surrounding technology stocks has made the S&P 500 trade sideways lately. The index reached an all-time peak at the close of January but ceded some ground in February and has remained relatively flat since late October.
Ulin advised CNN that while reacting to market noise is unwise, portfolio reviews during periods of upheaval are crucial. He mentioned that he is now less reliant on big tech holdings, instead reallocating portions of his portfolio toward supplementary sectors like materials, energy, infrastructure, industrials, healthcare, and staples.
Craig Johnson, Chief Market Technician at the investment bank Piper Sandler, downgraded his recommendation for the technology sector this week from “overweight” to “neutral.” Essentially, he has adjusted his portfolio weighting to depend less on technology.
Johnson maintains a positive outlook on sectors like energy and anticipates that portfolio rotation will continue as investors seek refuge from the recent volatility in tech shares.
Energy, materials, and consumer staples are the three top-performing sectors within the S&P 500 so far this year, while technology and financials lag. A widely-followed ETF tracking the energy sector has climbed 25%, contrasting with a technology sector ETF that has fallen around 3.6%.
Diversify Your Portfolio
Analysts indicated that it remains unclear whether the bulk of AI-related uncertainty has passed. How investors should respond now depends on their savings timelines and investment objectives—but there are established methods for reinforcing a portfolio amidst heightened anxiety.
“Investors have become very skittish and fearful about the impact of AI,” stated Jed Ellerbock, Portfolio Manager at Argent Capital Management. “The market today feels nervous and unsteady. The focus seems to be quickly whipping from one theme to another, making a well-diversified portfolio a logical choice in my view.”
Another course of action is rebalancing or investing in an index such as the equal-weighted S&P 500. This equally weighted index assigns the same importance to every stock, thereby dampening the impact of steep declines in technology names. The equal-weighted S&P index has increased by nearly 7% this year, outperforming the standard S&P’s sub-1% gain.
Increasing exposure to international equities could also bolster returns. European and Asian markets have outperformed the U.S. this year, following strong growth observed in 2025.
During times of turbulence and unpredictability, adhering to a long-term plan and tuning out the noise can also prove to be a sound strategy, analysts observed.
“We always advocate for diversification rather than focusing on a single investment theme,” commented Johan Strand, Wealth Manager and Research Analyst at Badgley Phelps.
“Predicting what the stock market will do in the immediate future is always difficult,” Strand added. “Negative sentiment could persist here, but we are still hopeful for positive outcomes in 2026 for the equity markets.”
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