The Tech Stock Rotation: Why the Market Suddenly Remembered Everything Else

This week’s tech stock rotation caught a lot of investors off guard. After months of artificial intelligence names carrying the market, money started moving out of technology and into the kinds of companies most of us have known for decades: retailers, banks, insurance companies, real estate investment trusts, and the makers of everyday goods. On this episode of The Financial Hour of The Tom Dupree Show, Tom Dupree, Mike Johnson, and Michael Dawahare break down what drove the shift, what AI data center debt has to do with it, why a 5% Treasury yield is more normal than it feels, and what all of it means for your retirement income.

Tom opened the hour with a story about Dave Matthews and guitarist Tim Reynolds. Before Dave Matthews Band was a household name, Matthews was tending bar at Miller’s, a restaurant in Charlottesville, Virginia that is still in business. Reynolds, a working musician who played sets there, recognized a musician in Matthews before Matthews saw it in himself, and selflessly encouraged him to start his own band. (Tom also recommends the band’s live shows, drummer Carter Beauford, and their version of “All Along the Watchtower.”) It’s a story about seeing value before the crowd does, which is a pretty good description of what the market started doing this week.

What Happened With CoreWeave and AI Data Center Debt

The spark was CoreWeave, a company that mainly builds data centers for artificial intelligence. Tom noted that data centers face plenty of crosswinds, from community resistance to how they’re financed, and a lot of that financing has come from bonds. Some are secured, backed by something like a contract with Meta. Others are unsecured, which Michael Dawahare described simply: it’s just a promise to pay.

This week, the market took a hard look at that unsecured debt. CoreWeave’s unsecured bonds fell sharply in price, and Michael said they were trading more than 10 percentage points over Treasuries. In plain English: if a Treasury yields 5%, those bonds were yielding around 15%. When lenders demand that much extra interest, they’re nervous about getting paid back. NVIDIA CEO Jensen Huang voiced support for CoreWeave on Thursday, and the stock, which had been down significantly, moved higher. But the bigger story was the ripple effect across stocks and bonds.

“It’s not just, ‘Hey, you know, pedal to the metal, do whatever you want.’ The market’s having a critical eye on things.” Michael Dawahare

Michael said he was encouraged, because it takes some of the froth out.

Tech Stocks Down, Everything Else Up: The Equal Weight S&P 500 Story

As of the recording, the Nasdaq, which is made up primarily of technology companies, was down about 3% over five days. The equal-weight S&P 500, which holds the same 500 companies but gives each one the same weight instead of letting the largest tech names dominate, was up about 1%.

Michael said this back and forth has been the story of the year. In March, the S&P 500 was down about 7% while the equal-weight version was up. In mid-August that flipped, and the “everything else” market, the S&P 493, fell about 5% from its high. Now it has flipped again. The companies drawing interest are what Mike Johnson called old economy stuff, things you’ve heard of: Kimberly-Clark, VF Corp (maker of The North Face), retailers, and financials from banks to insurers to REITs.

Is a 5% 10-Year Treasury Yield Really That High?

The 10-year Treasury yield climbed to around 5.33% this week and then dropped to about 5.09%. Since mid-August, the hosts noted, it had climbed from just under 4% to about 5.3%. You can follow the daily 10-year Treasury yield in the St. Louis Fed’s free FRED database.

That run-up pushed down prices in the “everything else” market, and Michael said it was the speed, as much as the size, that shocked investors. If rates settle between roughly 4.75% and 5.25%, he said, some of that price decline would likely retrace.

“This is the amazing thing about markets. Where we are right now, roughly a 5% yield on a 10-year Treasury, is not out of the norm. That’s normal.” Michael Dawahare

Michael pointed to Wharton professor Jeremy Siegel, who has written that rates like these reflect strength in the economy. Mike Johnson added that until the Great Financial Crisis, 5% on a 10-year bond was normal “going back to the Roman times,” so rates stabilizing here is actually a positive.

Who Benefits When Borrowers Compete for Money

Part of the reason rates are higher is competition for money. AI companies are borrowing heavily and competing with every other borrower, so lenders get to take their pick.

“They’re able to say, ‘I don’t want this credit. I will take some of this credit, but I want it at this price.'” Michael Dawahare

If you’re sitting on cash and you’re a lender, you’re in a good spot. That helps banks, insurance companies, and Berkshire Hathaway, whose large cash pile sits mostly in short-term Treasuries. The hosts joked they’d love to see the headline “Berkshire makes huge move into AI,” then noted Berkshire sort of has, through its investment in Bending Spoons, a company that acquires established technology products. Some long-term shareholders sold this week, seeing it as style drift now that Warren Buffett no longer runs the company. The hosts pointed out the same complaint could have been made when Buffett bought Apple, a move they credited mainly to Todd Combs. Berkshire has since built a big position in Alphabet. The common thread: Berkshire likes cash flow, wherever it comes from.

Railroads, Canals, and Fiber Optics: What History Says About the AI Build-Out

Mike Johnson shared a summary he’d read this week that reaches back to 1873. After an epic railroad build-out, one that involved some of the founding families of Central Kentucky, the country hit a crash because the railroads had overbuilt. You can read more about the Panic of 1873 from PBS American Experience.

Fortunes were made, and the railroads helped make America the world’s preeminent economy. Then came the combustion engine and John D. Rockefeller’s oil, and it turned out people wanted cars. Thirty or forty years later, the railroads had lost about half of what they thought their market would be.

“That doesn’t mean railroads weren’t great; it just means in 1873 they had overbuilt.” Mike Johnson

The hosts carried the analogy back to the canals. The Erie Canal drew enormous money and manpower, including the Italian and Irish workers who came to Northern New York to dig it, before steam power and the railroads overtook the canals and much of that money was lost. The railroads themselves were financed before there was a Securities and Exchange Commission, when it wasn’t always clear whether a railroad bond was secured or unsecured. A lot of bond money was lost, and yet the railroads survived. Fiber optics in the 1990s followed the same pattern: overbuilt, yet the internet turned out to be enormously valuable, and the companies built on it now make up much of the market.

The lesson isn’t that superintelligence is bad. So far, Mike said, there’s no evidence of massive job displacement; if anything, there’s a need for workers. The lesson is that this build-out is like the Erie Canal, the railroads, and the combustion engine all happening at once, at warp speed, alongside quantum computing. A slowdown would be healthy, the hosts said, even if it hurt the projections of AI companies like Anthropic. As Jensen Huang said at a recent roundtable, there will be winners and losers.

“It’s the old John Wooden line, ‘Be quick, but don’t hurry.’ We need to build them, but we don’t have to go at this crazy breakneck speed.” Mike Johnson

Where the Hosts See Opportunity: REITs, Retail, and Dividend-Paying Stocks

So where do things go from here? With the S&P 500 near all-time highs and money rotating out of what it’s weighted toward most, the hosts said to think risk and reward: look at areas that have pulled back, where valuations aren’t stretched, and look for income. All else being equal, if yields come down, dividend-paying stock prices will likely go up. Add company-specific research, including companies that own bonds, and that’s where they see value.

REITs for Retirement Income After the Rate Spike

REIT stands for real estate investment trust. By definition, a REIT must pay out at least 90% of its taxable income to shareholders, which the SEC explains in its investor guide to REITs. That’s why REITs tend to carry higher yields and are generally treated as income investments.

Because REITs pass so much through, Michael cautioned, they can’t retain earnings, so you have to be very selective. He said DFG holds two REITs that own physical real estate, including large single-tenant properties, smaller single-tenant properties, distribution facilities, and even some vineyards.

Because rates have climbed since mid-August, REIT prices have generally come down, so a new buyer at today’s price gets a higher yield. Michael said some REITs that own physical real estate are yielding over 6%, occupancy hasn’t changed, and most have lease adjustments that tend to move higher with rates. Assuming the fundamentals haven’t changed, he said, a lower price gives you more cushion on the way in.

Mortgage REITs and Interest Rate Sensitivity

Some REITs don’t own buildings at all. Mortgage REITs own bonds, and like other REITs, they pass through 90% of their income to shareholders. Michael said that at today’s prices, some of these yield well over 10%, and their decline over the last two months has been based solely on interest rates going higher. If rates come down, or simply stay in a range, he said that should bode well for share prices.

The other side of that coin: higher yields come with real interest rate sensitivity, and REIT prices can fall. All investing involves risk, including possible loss of principal.

Oil, Input Costs, and the Case for Cyclical Stocks

Michael also sees opportunity in retail, including companies that make or distribute clothing. Mike Johnson explained that cyclical industries are dealing with a short-term spike in input costs because of oil. In his view, it isn’t a supply problem, since the country has a 1,000-year supply. It’s a logistics problem: as he understands it, no refinery has been built since 1977, and many have closed.

“It’s not a supply issue. It’s a short-term constraint.” Mike Johnson

Mike read this week’s rotation into cyclical stocks as the market saying it knows this is temporary. His view is that by February, March, or April, diesel and gasoline prices will be down.

Rates, Oil, and the Midterm Elections

Mike noted that the midterm elections are a few weeks away. He said the party promising to bring gasoline prices down has the elimination of fossil fuels as an industry in its platform, which he called a hard thing to reconcile. He pointed back to the second presidential debate in 2020, when he said candidate Joe Biden stated the fossil fuel industry would not exist by 2030. No one knows what’s going to happen, Mike said, and it could be a divided government. But assuming there’s no attempt to eliminate the fossil fuel industry, he expects the input cost problem to resolve relatively quickly.

What to watch next, in his view: rates, oil, the midterms, and the AI build-out. If those resolve as he expects, it sets up a robust economic outlook into the first half of next year, for the economy, he was careful to say, not necessarily the stock market.

Why the S&P 500 Dividend Yield Is Only About 1%

Here’s a number that matters to retirees. Michael said the dividend yield on the S&P 500 is about 1.09%, basically the lowest it has been since roughly 2000. The reason: a handful of mega-cap companies that pay little or no dividend, including Meta, Amazon, Microsoft, NVIDIA, and Alphabet, now make up roughly 40% of the index.

Michael noted that forward price-to-earnings ratios on some of those names have come down as earnings grew, but owning them is still largely about price movement and the hope of appreciation. That cuts to the core of investing: how you’re invested has to line up with your goals and needs. You could put everything into an illiquid private equity deal and maybe beat the S&P 500 over ten years, maybe not, but you’d give up liquidity and transparency to find out.

“What does any of that mean if it’s not applied to your situation? That’s what it all comes down to.” Michael Dawahare

Bonds Are Paying Again, With One Catch

Bonds, on the other hand, actually have a yield now, and Michael said the classic 60/40 stock and bond portfolio is more attractive for income than it has been in a while. The catch: a bond has no inflation adjustment, and over a long retirement, rising prices erode what a fixed payment buys. The Consumer Price Index from the U.S. Bureau of Labor Statistics is the standard way to track that. For a plain-English overview of how bonds work, see Investor.gov’s guide to bonds and fixed income products.

The hosts had fun with where the word “bond” comes from: it’s a promise to pay, so you’re bonded to the other party. For the bourbon lovers, there’s the Bottled-in-Bond Act of 1897. A bottled-in-bond bourbon is made at one distillery and aged in a bonded warehouse, or rickhouse, which is how the government cracked down on counterfeit bourbon that was making people sick in the 1890s.

Building a Retirement Portfolio Is Like Baking a Cake

With bonds paying again, the question is how to put the pieces together. Michael said you want an inflation adjustment inside the portfolio, which comes from price appreciation and from companies that consistently raise their dividends.

“It’s just like baking a cake. You have all the ingredients in and of themselves. They don’t really mean much to the consumer. It’s how it’s put together, and is it actually accomplishing what your needs and goals are.” Michael Dawahare

Someone still saving has different needs than someone about to retire, or someone retired 20 years and thinking about the next generation. That’s why, Michael said, beating the index this quarter has no bearing on your situation. Identify your needs first, then ask whether you’re invested properly to meet them. For DFG clients, the goal is a return that exceeds inflation and taxes, by matching cash flow needs with the cash the portfolio actually generates.

How Dividends Help Keep You From Outliving Your Money

That’s where dividends become key. Withdrawing money at the wrong time can do lasting damage, and it’s often why people outlive their money. It usually isn’t lavish spending. It’s selling when the market is down and going through savings faster than they should.

“They provide the income. They pay for the lights. They pay for your expenses while something wonky may be going on with the market. You’re not liquidating at the wrong time.”

Tom made the same point during the break, with groceries, restaurants, and housing costs still climbing.

“Inflation doesn’t retire when you do, and a volatile market doesn’t care about your timeline.” Tom Dupree

That’s why, Tom explained, Dupree Financial Group builds retirement income strategies around dividend-paying investments: real companies that tend to grow what they pay over time. Dividends are not promised, and any company can cut one, which is why research and diversification matter. This is educational information, not individualized investment or tax advice.

Margin Debt at a Record High: The Headline vs. the Reality

It’s easy, Michael said, even for people in the business, to think everything is negative. Take margin debt, money investors borrow against their brokerage accounts. It’s at a record, around $1.5 trillion by the figure he’d seen. You can track it yourself through FINRA’s monthly margin statistics.

But relative to the size of the market, he said, it’s roughly in line with its average since about 1997, per a study he saw. Pockets of the market always get frothy and then rotate. The fundamentals right now: earnings are good.

“There are always potholes that you have to drive around, that you try to navigate through.” Michael Dawahare

Reasons for Optimism: Energy, Earnings, and Artificial Superintelligence

Mike Johnson agreed that important things are already going right. For more than 100 years, economic activity has been driven largely by input costs, which follow the price of oil. The short-term problem is real, but he sees the United States and the Western Hemisphere asserting themselves as the dominant fossil fuel suppliers for decades ahead, with OPEC fading to the point that people aren’t even searching for it. If the terror premium on oil moving through the Strait of Hormuz goes away, and a barrel of West Texas Intermediate settles somewhere between $60 and $75, Mike said everybody wins, and we stop funding bad actors at the rate we used to. He called that a significant positive the country hasn’t seen on a sustained basis since about 1973.

And artificial superintelligence, he said, is a significant step forward for humanity, including in healthcare. There are things to work out, and the industry knows it must do a better job of incentivizing the communities where it builds.

Why Personalized Investment Management Matters When the Market Rotates

Weeks like this one show the difference between a portfolio built around your needs and one built around a model. Personalized investment management starts with a different question: what does your money need to do for you?

A Local Financial Advisor, Not an Assigned Investment Counselor

At many large national firms, a new client is assigned an investment counselor working within a mass-market process. At Dupree Financial Group, you sit down with a local financial advisor in Lexington, Kentucky, starting with your income needs and what you already own. Our Kentucky retirement planning services are built for Central Kentucky families who want to know the people managing their money.

Direct Access to the People Managing Your Portfolio

The voices you hear on The Tom Dupree Show every Saturday are part of the team doing the in-house research behind client portfolios. You don’t have to work your way up a large firm’s hierarchy to get an answer about your REITs or bonds. You can read more about that approach on our investment philosophy page, or catch up on past conversations in our market commentary archive.

Regional Focus Over National Scale

National scale can mean your account is one of millions run through the same model. Dupree Financial Group is a fee-only fiduciary, which means we don’t earn commissions on the products we recommend, and we’re structured to minimize conflicts of interest. Our focus is the households of Central Kentucky and the retirees who want income they can see. If you want to know what others have experienced working with our team, visit our client testimonials page.

If you aren’t sure what you own in your portfolio, or why, a personalized portfolio analysis is a good place to start. You can call us at 859-233-0400.