How to understand global markets at the start of the year? "Affordability" is the overarching narrative for 2026: "Main Street" needs to win once, the AI narrative is undergoing a huge shift, and the yen is "key."
At the beginning of 2026, the global market is undergoing a paradigm shift.
According to Chase Wind Trading Desk, on February 12, the research team of Michael Hartnett at BofA Securities released a report pointing out that money is leaving the star assets of the past few years.
Since the start of the year, gold is up 13.4%, oil up 9.5%, international stocks up 8.7%. U.S. stocks down 0.2%, Bitcoin plummeted 25%.
The core factor behind this is "affordability" politics. The Trump administration is aggressively shifting its policies to appease "Main Street" (ordinary people) rather than "Wall Street" (the elite). BofA emphasizes that this implies three key changes:
First, a historic rotation from U.S. large-cap growth stocks to small-cap value stocks has begun;
Second, the AI narrative is shifting from "AI awe" to "AI impoverishment," 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 characteristic of a structural bull market. But beware of the yen appreciating too quickly (USD/JPY below 145) triggering global deleveraging.
Rise of “Main Street” Assets Under “Affordability” Politics
Currently, the overarching switch for the market is political response to the "affordability" issue.
The report notes that, under pressure from the midterms, Trump's policies have shifted toward solving people's livelihood burdens, sparking an asset rotation from "Wall Street" to "Main Street."
The winners are “Main Street” inflation boom assets. Since the end of last October, assets benefited by the global manufacturing recovery and inflation logic have performed exceptionally: silver (+56%), Korea KOSPI index (+34%), Brazilian stocks (+30%), materials (+25%), energy (+20%), U.S. regional banks (+19%).
(Record four-week net inflows into Korean stocks)
The losers are “Wall Street” wealth bubble assets. Conversely, previously favored tech giants and speculative assets are seeing sell-offs: “Magnificent Seven” stocks (-8%), Bitcoin (-41%), and software stocks impacted by AI (-30%).
The essence of this rotation is the market pricing in a policy shift from financial services to real manufacturing, and from capital gains to livelihood costs.
The report sees reversal of this trend only if there are major policy or profit events, such as a banking stock crash causing credit spreads to surge, AI giants cutting capex, or changes in tariffs.
Change in AI Narrative: From “Awe” to “Impoverishment”
The attitude towards artificial intelligence in the market is changing from blind pursuit (AI-awe) to scrutiny of its costs and destruction (AI-poor).
Research shows the current AI arms race is costly. In the past 5 months, AI mega-firms have issued $170 billion in debt, compared to an average annual $30 billion from 2020-2024. Corporate bond spreads are also rising, tightening the financing environment.
(Spread of U.S. large company bonds)
In Q1 2025, India's tech sector (INFO, TCS) became the first industry disrupted by AI, and stock prices have yet to recover. This week, AI disruption is spreading to insurance brokerage, wealth advisory, real estate services, and logistics.
The report believes that under the current “AI impoverishment” narrative, major profit or policy events are needed to reverse market sentiment and flows again, such as a mega AI firm announcing capex cuts.
In the short term, when this happens, it may worsen worries about AI industry chain capex slowdown and downward revision of growth expectations, possibly causing more intense sell-offs in related stocks (especially hardware, semiconductors, software).
However, from a market cycle perspective, such iconic events often mark the “peak” or “consensus” phase of a trend. When the most aggressive investors start to contract, it may signal the transition from a stage of “unlimited arms race investment” to a new phase focused on profitability and efficiency.
Yen: Key to Global Liquidity
The yen's movement has become a critical variable for global asset pricing.
BofA stresses that the price correlation between yen and the Nikkei has turned positive for the first time since 2005, an extremely important technical signal.
(TOPIX and yen correlation turns positive)
Historically, when a country's currency and stock market rise together, it often heralds the arrival of a long-term bull market, as seen in Japan 1982-1990, Germany 1985-1995, and China 2000-2008.
The report adds, however, that rapid yen appreciation in the short term will increase pressure to sell assets like cryptocurrency, silver, private equity, software, and energy.
More importantly, the report warns, yen cannot be allowed to surge disorderly (e.g., USD/JPY below 145). Because rapid yen appreciation has historically coincided with global deleveraging, impacting liquidity in global financial markets.
Thus, the U.S. government is unlikely to allow the 30-year Treasury yield to break above 5%, which also explains why long-term Treasuries remain the best risk hedge for 2026.
Era of Great Rotation Arrives
Currently, BofA's “Bull & Bear Indicator” reads 9.4, still in the warning zone for triggering a “sell” signal (threshold >8). It is a contrarian sentiment indicator: higher values signal more fervent market sentiment, more crowded positions, and higher risk of a short-term correction.
Investors should pay special attention to the fund manager survey data released February 17: cash levels jump sharply from the historic low of 3.2% to above 3.8%, bond allocations rebound from net underweight of 35%, tech stocks shift from net overweight 17% to neutral, consumer staples underweight narrows from 30%.
The report reviews five “great rotations” in the past half-century, each triggered by major political, geopolitical, or financial events.
Examples include the collapse of Bretton Woods in 1971, Volcker's anti-inflation campaign in 1980, and post-2009 QE after the global financial crisis, each fundamentally changing asset leadership.
The report says we are at the starting point of a new great rotation, the next era's leader will be emerging markets and small-cap stocks:
Small-cap value stocks outperform large-cap growth stocks:Driven by rising populism, manufacturing reshoring, and high costs of the AI arms race disadvantageous to tech giants.
(Relative price: U.S. large-cap growth vs U.S. small-cap value stocks)If the U.S. government intends to cap the 30-year Treasury yield at 5%, this will be a pivotal turning point for small-cap value compared to large-cap growth stocks.
U.S. market shifts towards emerging markets:The world needs a new bull market for its new order. The era of dollar dominance may end; “buy everything but the dollar” trades may emerge.In particular, China and India, two of the top four economies, are still severely underweighted in global asset allocation.
(Emerging market stocks vs U.S. stocks, USD denominated)Chinese banking stocks have quietly hit an 8-year high, which may indicate that Chinese assets (banks, real estate, consumer) are ending deflation and ushering in a “great rotation” from bonds to stocks.
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Above content is from Chase Wind Trading Desk.
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