Wall Street’s AI trade reverses as billions flow into insurers, small-caps

Billions of dollars are rotating out of AI-linked stocks and into insurers, small-cap companies, and other sectors that were gathering dust on institutional shelves. Non-tech US equity funds attracted $62 billion in inflows over just five weeks in early 2026, a figure that exceeded total inflows for the entirety of 2025. The great unwind Hedge funds have been deleveraging from US tech positions at what is being described as the fastest pace on record, with net selling observed in six of eight weeks around mid-2026. Sector exposure has dropped roughly 10% since early June alone. Since June 22, select software stocks have added approximately $1.5 trillion in gains. Semiconductor firms, once the undisputed kings of the AI trade, have shed around $2.6 trillion. That’s a $4.1 trillion swing in relative value between two corners of the tech universe. Insurance stocks hit record highs in late July 2026 as investors sought businesses with predictable cash flows and minimal exposure to the AI disruption narrative. The Russell 2000 small-cap index posted a 6% gain in early 2026, outperforming tech benchmarks and benefiting from more attractive valuations and sensitivity to domestic interest ...