Unless you live under a rock, you're well aware that the tech sector has dominated the U.S. stock market for the last three years, relentlessly dragging the S&P 500 index higher and sustaining the 3.5-year bull market.
But not this year. So far in 2026, energy, materials, and industrials stocks are crushing tech:
- Energy stocks, as measured by the State Street Energy Select Sector SPDR ETF (XLE 0.45%), are up 21.5% this year.
- Materials stocks, as measured by the State Street Materials Select Sector SPDR ETF (XLB +0.37%), are up 17.6%.
- And industrials, measured by State Street Industrial Select Sector SPDR ETF (XLI 0.46%), have climbed 12.3%.
Technology stocks, by contrast, are down 3% for the year, as measured by the State Street Technology Select Sector SPDR ETF. So, why has there been such a dramatic rotation in sectors in 2026? Several reasons, really.
Image source: Getty Images.
AI fatigue has set in among investors in 2026
As far as tech stocks go, it seems that artificial intelligence (AI) fatigue has set in. After piling money into AI hyperscalers -- and in particular the Magnificent Seven stocks -- for years, investors seem to have grown tired of the overcrowded trade. The Magnificent Seven stocks are down 8.8% so far in 2026, as measured by the Roundhill Magnificent Seven ETF.
At the same time, investors have warmed to industrial stocks like farm and construction equipment giants Caterpillar and Deere, reasoning that, no matter who wins the AI race, they'll need the equipment -- and in particular the power infrastructure equipment -- that these and other industrial firms manufacture.
As for energy stocks, they're soaring on U.S. foreign policy, among other factors. Since the U.S. military captured and detained Venezuelan President Nicholas Maduro on Jan. 3, many investors have begun to think that major oil companies like Chevron and ExxonMobil will now have access to Venezuela's oil reserves, which, at 19.4 billion barrels, are considered to be the world's largest. Indeed, Venezuela sits on a fifth of the world's proven oil reserves.
Rising U.S.-Iran tensions have also buoyed the price of crude oil this year, which is great for the energy sector.
And the materials sector, which is heavy in metals and mining stocks, has climbed higher in 2026 on a rebound in commodities prices and demand for metals and other basic materials in the AI infrastructure buildout. Prospects for strong global growth in the near term is also a big factor in the outperformance of materials stocks this year.
Energy stocks may come back to Earth when investors finally grasp the challenges of resurrecting the moribund Venezuelan oil industry. By contrast, factors sending materials and industrial stocks higher look, to me, as if they have room to run this year -- and that makes State Street's materials sector ETF and industrial sector ETF worth considering now.
