Ed Yardeni Sees AI Scare Potentially Lasting Through Middle of the Year
Speakers
Ed Yardeni — President, Yardeni Research
— Yardeni Research president
Summary
- AI sentiment has shifted drastically from "productivity enhancing" to a "Frankenstein monster" fear, a mood swing Yardeni calls a "derangement syndrome."
- The "Mag 7" are currently in a "penalty box" due to soaring CapEx guidance and slowing earnings growth; this underperformance may persist through the middle of the year.
- A "Great Rotation" is underway, moving capital away from concentrated tech names into foreign markets and lagging US sectors.
- The broader market is undergoing a healthy rebalancing rather than a bear market, as the S&P 500 holds up despite Big Tech weakness.
Trade Ideas
Ed Yardeni
President, Yardeni Research
"We have seen this beginnings of a great rotation into foreign markets." As investors pull money from expensive US tech concentration, they are seeking value in under-owned global markets. Capital flow is shifting structurally toward international assets as part of a broader rebalancing. A strong US dollar or global recession could dampen returns in foreign equities.
Ed Yardeni
President, Yardeni Research
Yardeni observes a "great rotation into sectors of the S&P 500 that certainly lagged behind during the rally." The fear was that if Mag 7 fell, the whole market would crash. Yardeni notes "That's not happening." Instead, the "other 493" stocks are catching a bid, making the Equal Weight index (RSP) or value sectors the beneficiaries of tech outflows. Long the "rest" of the market as valuation spreads compress between Big Tech and everything else. If the economy slows significantly, cyclical sectors (often the laggards) would suffer regardless of rotation.
Ed Yardeni
President, Yardeni Research
Yardeni states Big Tech is in a "penalty box" because "earnings growth has slowed" while "CapEx guidance has soared." He notes a sentiment shift where AI is now viewed as a "Frankenstein monster." While he believes this is a "derangement syndrome" (implying the fear is irrational long-term), he explicitly predicts this "extreme mood swing... could last through the middle of the year." The sector is dead money or volatile until sentiment stabilizes around mid-year. Sentiment could reverse faster than expected if inflation data cools or AI applications show immediate revenue.
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This Bloomberg Markets video, published February 26, 2026, features Ed Yardeni discussing EFA, RSP, FNGS. 3 trade ideas extracted by AI with direction and confidence scoring.
Speakers: Ed Yardeni · Tickers: EFA, RSP, FNGS