As the global market enters 2026, it is undergoing a paradigm shift.
According to news from the trading desk, on February 12, Bank of America Securities' Michael Hartnett research team published a report indicating that money is leaving the star assets of the past few years.
Year-to-date, gold has risen by 13.4%, oil by 9.5%, and international stocks by 8.7%. U.S. stocks have fallen by 0.2%, and Bitcoin has plummeted by 25%.
The core factor behind this is &#34;affordability&#34; politics. The Trump administration is aggressively shifting its policies to cater to &#34;Main Street&#34; (the general public) rather than &#34;Wall Street&#34; (the elite). Bank of America emphasizes that this signifies three key changes:
<blockquote>
First, the historic rotation from large-cap growth stocks to small-cap value stocks in the U.S. has begun;
Second, the AI narrative is shifting from &#34;AI awe&#34; to &#34;AI poverty,&#34; putting pressure on tech stocks;
Third, the correlation between the yen and Japanese stocks has turned positive for the first time since 2005, which is a characteristic of a structural bull market. However, caution is needed as rapid yen appreciation (falling below 145) could trigger global deleveraging.
</blockquote>
<h2>Under &#34;affordability&#34; politics, &#34;Main Street&#34; assets rise</h2>
The total switch in the current market is the political response to the issue of &#34;affordability.&#34;
The report points out that under pressure from the midterm elections, Trump’s policies have shifted to address the burden of living costs, triggering a major asset rotation from &#34;Wall Street&#34; to &#34;Main Street.&#34;
Winners are the &#34;Main Street&#34; inflation prosperity assets. Since the end of October last year, assets benefiting from the global manufacturing recovery and inflation logic have performed outstandingly. Silver (+56%), South Korea's KOSPI index (+34%), Brazilian stocks (+30%), materials (+25%), energy (+20%), and U.S. regional banks (+19%).
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/fa18f5e4-3fce-4d4f-80cb-738d60268c63.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/fa18f5e4-3fce-4d4f-80cb-738d60268c63.png"/> (Record inflow of funds into South Korean stocks over 4 weeks)
Losers are the &#34;Wall Street&#34; wealth bubble assets. In contrast, previously favored tech giants and speculative assets have faced sell-offs. The &#34;seven giants&#34; stocks (-8%), Bitcoin (-41%), and the software sector impacted by AI (-30%).
The essence of this rotation is the market pricing a shift in policy focus from financial services to real manufacturing, and from capital gains to the cost of living.
The report believes that only significant policy or earnings events, such as a collapse of bank stocks leading to a surge in credit spreads, AI giants cutting capital expenditures, or changes in tariffs, could reverse this trend.
<h2>Changes in the AI narrative, from &#34;awe&#34; to &#34;poverty&#34;</h2>
The market's attitude towards artificial intelligence is changing, shifting from blind admiration (AI-awe) to examining its costs and destruction (AI-poor).
**Research data shows that the current arms race in AI is costly. In the past five months, the debt issuance of AI mega-companies has reached $170 billion, while the average annual issuance from 2020 to 2024 was only $30 billion. The bond spreads of these companies are also rising, and the financing environment is tightening
**
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/71ddb4a5-18e3-4070-a668-6771fe38c5e8.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/71ddb4a5-18e3-4070-a668-6771fe38c5e8.png"/> (U.S. Large Corporate Bond Spread)
In the first quarter of 2025, the Indian technology sector (INFO, TCS) became the first industry disrupted by AI, and its stock prices have yet to show improvement. This week, the impact of AI disruption has spread to industries such as insurance brokerage, wealth advisory, real estate services, and logistics.
The report suggests that under the current narrative of &#34;AI-induced poverty,&#34; significant profit or policy events are needed to trigger a reversal in market sentiment and capital flows, such as an announcement of capital expenditure cuts by a large-scale AI company.
In the short term, this may intensify market concerns about the slowdown in capital expenditures across the AI industry chain and downward revisions of growth expectations, potentially leading to more severe sell-offs of related stocks (especially in hardware, semiconductors, software, etc.).
However, from a market cycle perspective, such landmark events often occur at the &#34;extreme&#34; or &#34;consensus&#34; stage of a trend. When the most aggressive investors begin to shift towards contraction, it may signify a transition of the industry from the &#34;unlimited investment arms race&#34; phase to a new phase of &#34;pursuing profitability and efficiency.&#34;
<h2>The Yen is Key to Global Liquidity</h2>
The movement of the yen has become a key variable affecting global asset pricing.
Bank of America emphasizes that the price correlation between the yen and the Nikkei index has turned positive for the first time since 2005, which is an extremely important technical signal.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/75e061da-4b68-4d5e-b22a-3d55bd7ea259.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/75e061da-4b68-4d5e-b22a-3d55bd7ea259.png"/> (Correlation between the Tokyo Stock Price Index and the Yen turns positive)
Historical experience shows that when a country's currency and stock market rise simultaneously, it often heralds the arrival of a long-term bull market, as seen in Japan from 1982 to 1990, Germany from 1985 to 1995, and China from 2000 to 2008.
However, the research report adds that a rapid short-term strengthening of the yen will exacerbate selling pressure on assets such as cryptocurrencies, silver, private equity, software, and energy.
More importantly, the report warns that a disorderly surge in the yen (for example, if the USD/JPY falls below 145) must not occur. This is because a rapid appreciation of the yen has historically coincided with global deleveraging processes, which would impact liquidity in global financial markets.
Therefore, the U.S. government is also unlikely to allow the 30-year Treasury yield to exceed 5%, which explains why long-term U.S. Treasuries remain the best risk hedging tool for 2026.
<h2>The Era of Major Rotation Has Arrived</h2>
Currently, Bank of America's &#34;Bull-Bear Indicator&#34; reading is 9.4, still within the alert zone for triggering a &#34;sell&#34; signal (threshold &gt; 8). This indicator is a contrarian sentiment indicator; the higher the value, the more exuberant the overall market sentiment and the more crowded the positions, leading to greater short-term pullback risks
Investors should pay close attention to the fund manager survey data released on February 17: cash levels have surged from a historical low of 3.2% to over 3.8%, bond allocations have rebounded from a net underweight of 35%, technology stocks have shifted from a net overweight of 17% to neutral, and consumer staples have narrowed from a net underweight of 30%.
The report reviews five instances of &#34;great rotation&#34; over the past half-century, each triggered by significant political, geopolitical, or financial events.
Such as the collapse of the Bretton Woods system in 1971, Volcker's anti-inflation measures in 1980, and the QE following the global financial crisis in 2009, each round has fundamentally changed the landscape of asset leadership.
The report suggests that we are at the starting point of a new round of great rotation, with the next era's leaders being emerging markets and small-cap stocks:
<blockquote>
Small-cap value stocks outperform large-cap growth stocks:
<ul>
<li>The logic is that the rise of populism, the return of manufacturing, and the high costs of the AI arms race are unfavorable for large technology giants.</li>
</ul>
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/39879a5d-dbfc-413e-a3f8-7fab83abf865.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/39879a5d-dbfc-413e-a3f8-7fab83abf865.png"/> (Relative prices of U.S. large-cap growth stocks and U.S. small-cap value stocks)
<ul>
<li>If the U.S. government plans to cap the 30-year Treasury yield at 5%, this will be a significant turning point for small-cap value stocks relative to large-cap growth stocks.</li>
</ul>
The U.S. market shifts towards emerging markets:
<ul>
<li>The new world order requires a new bull market. The era of a strong dollar may reverse, and a trade of &#34;buy everything except the dollar&#34; may emerge.</li>
<li>Especially among the world's top four economies, China and India are still severely underweighted in global asset allocation.</li>
</ul>
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/1ebe3b24-5738-48b6-a080-ca28958bd585.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/1ebe3b24-5738-48b6-a080-ca28958bd585.png"/> (Relative levels of emerging market stocks and U.S. stocks, priced in U.S. dollars)
<ul>
<li>Chinese bank stocks have quietly risen to an 8-year high, which may signal the end of deflation for Chinese assets (banks, real estate, consumption) and usher in a &#34;great rotation&#34; from bonds to stocks</li>
</ul>
</blockquote>

SPLV

The Bank of America team led by Michael Hartnett believes that Trump's "affordability" politics is shifting funds from the "Wall Street elite" to "Main Street ordinary people": small-cap value stocks are rising, while tech giants are under pressure; the AI narrative is shifting from "awe" to "impoverishment," with related debt surging; the positive correlation between the yen and Japanese stocks indicates a long-term bull market, but caution is needed as a sharp rise in the yen could trigger global deleveraging. Emerging markets and small-cap stocks are expected to lead in the new era

- In early 2026, global markets are experiencing a paradigm shift as accounting for rising asset performances like gold (up 13.4%) contrasts with falling U.S. stocks and cryptocurrencies.  
- The shift is driven by political responses to "affordability," with a notable rotation from Wall Street to Main Street assets, benefiting sectors like silver and regional banks while tech stocks suffer.  
- Key indicators suggest we are at the onset of a "Great Rotation," favoring emerging markets and small-cap stocks, implying a broader transition in global asset preferences.

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How to understand the global market at the beginning of the year? "Affordability" is the overarching narrative for 2026: "Main Street" needs to win once, the AI narrative is undergoing a major change, and the yen is the "key."