The week ahead: The revenge of the dinosaurs and the end of easy conviction

The revenge of the dinosaurs

Last week was an unstable Betty Grable type of market. Not especially loud in a headline sense, but violent in the way only positioning-driven markets can be. Standard deviation moves tore through the asset complex, with equities and commodities doing the real damage. The tape was not debating value. It was clearing risk.

Some of the excess heat will fade. Markets always cool after they burn. Silver will not trade like a meme asset forever. But the game itself remains wide open. Each session this week may feel less like a continuation of the decade-long trend and more like a standalone expedition. The post -Covid Stock Market Operator manual is no longer reliable.

What made the week so deceptive was the finish. The S&P closed flat, which reads as calm if you only glance at the headline number. In reality, realized volatility surged to multi-month highs. The index went nowhere, but traders were dragged through the spin cycle. When markets behave like this, flat is not stable. Flat is stress in disguise.

Stepping back, early 2026 is beginning to take shape. The reflation trade has reemerged like a tide that refuses to stay out. Old economy ballast is back in the hull. Weight, pricing power, and nominal growth have ceased to be liabilities and have become anchors.

At the same time, the AI trade has entered a far less forgiving chapter. What was once a rising escalator now feels like a trapdoor. The market is no longer applauding ambition. It is auditing it. Every promise is being weighed against cash flow, capex, and execution risk.

The collision of those two forces has snapped a decade-long regime. For years, asset-light secular winners floated above gravity while asset-heavy cyclicals dragged along the bottom. That relationship has inverted. The market has begun to regard capital intensity not as dead weight but as armour.

That turn has unsettled investors because it breaks muscle memory. When the ratio between capital-intensive and non-capital-intensive stocks begins to roll over, the market is signalling that the rules of motion have changed. And when the physics change, portfolios built for the post-COVID playbook struggle to remain upright.

Here are your buckets

• Capital intensive: electricity, industrial materials, automobiles and parts, gas, water and multi-utilities, industrial metals and mining, telecommunications service providers, leisure goods, construction and materials, oil equipment and services.
• Non-capital intensive: technology hardware and equipment, medical equipment and services, pharmaceuticals and biotechnology, household goods and home construction, beverages, food producers, retailers, tobacco, software and computer services, personal goods. ( Goldman Sachs)

For most of the past decade, mega-cap tech earnings functioned as the market’s circuit breaker. Whenever confidence dipped, the switch was thrown, and the system rebooted. Retail rushed in, liquidity followed, indices stabilized, multiples re-inflated, and the tape regained traction. Growth did not just justify price. It rescued it.

This time, the mechanism failed to engage. The earnings prints were serviceable, but they did not alter the forward path. Core engines such as search and cloud remain productive, yet forward earnings remained pinned, while capital expenditure continued to rise. The market interpreted that not as investment in future dominance, but as erosion of future returns.

That distinction matters. Investors are no longer underwriting ambition on faith. They are testing whether the scale is still compounding or quietly consuming. Capex without upward revision is no longer a growth narrative. It is a balance sheet negotiation.

Within the technology sector, the tape has fractured. Strength in one pocket is being financed by weakness in another. Leadership is no longer communal. It is rationed. When a sector trades like that, brute force exposure stops working. Belief is no longer rewarded. Selection is enforced.

Look beneath the Nasdaq, and the structure becomes obvious. Over the past three months, advances and declines have nearly cancelled each other out. That is not a trend. That is the definition of a brutal landscape of winners and losers.

This is a fundamentally different regime from 2023, 2024, or even most of 2025. Back then, tech behaved like a single engine pulling the entire train. Direction mattered more than precision. Exposure trumped discretion. Today, that engine has splintered. The sector no longer moves as a block. It trades as a series of isolated skirmishes. Dispersion has replaced momentum.

That is a more difficult environment. It rewards judgment over conviction and punishes anyone still swinging at the index. The required skill set is narrower, and the margin for error is thinner.

This is the transition from index-based fantasy to single-stock filtration. The early phase of every technological wave rewards exposure. The latter phase rewards selectivity. That is where we are now. The winners will not be the loudest or the most ambitious. They will be the ones whose business models actually thicken rather than thin when the technology accelerates.

The near-term question is whether software has bled enough to find its footing. This is a call for specialists in reading flows within a dispersion tape. For everyone else, the bigger issue is structural, not tactical. The valuation reset has been fast and unforgiving. Multiples have compressed in weeks, not years, and with that compression, the presumption of upside has vanished. The burden of proof has flipped. This cohort now has to earn its rebound. It must demonstrate that prices have overshot fundamentals, not merely point to reflexive dip buying, which may not even exist. Cheap is no longer a thesis on its own. Without underlying earnings power, it is merely a lazy observation.

And this is where experience matters. Across cycles, across assets, the lesson is consistent. Once the market decides something has structurally changed, fighting the tape becomes futile. Perception hardens, liquidity aligns, and narrative loses relevance. We have seen this before in legacy media and physical retail. Once the verdict is in, price does the talking.

One way to appreciate the difficulty of the current setup is this. The most crowded factor in the hedge fund universe is now trading with near-peak realized volatility. When ownership sits at the ceiling and volatility joins it there, the margin for error disappears. That is not an environment that tolerates complacency.

But this is not a story of blanket weakness. There are clear pockets of strength, and some of the cleanest price action on the board is coming from cyclicals. Industrials, materials, transports, chemicals, metals, mining, and energy are not merely holding together. They are behaving like leadership.

Part of that reflects a turn in nominal growth. Real activity has re-entered the equation. Part of it reflects perception. These businesses are not considered to be in the direct blast radius of AI disruption. In several cases, they are being re-rated as beneficiaries rather than casualties.

The practical outcome is rotation, not retreat. Capital is not abandoning equities. It is changing address. Money that once crowded into tech is seeking sturdier housing, and the old economy is starting to feel that bid.

This is no longer a passenger market. It’s a sink-or-swim market. The water is still warm, but the rip-tides are real. Some names will glide through. Others will discover too late that the tide has turned. The era of blanket narratives is ending. What replaces it is sharper, harsher, and far more interesting.

Despite the chaos of the week, internal market health was better than headlines implied. Breadth held up. Plenty of stocks printed higher highs. While the Nasdaq was chopping toward recent lows midweek, the equal-weight S&P was quietly breaking out to fresh highs and extending into the close. When that divergence appears, it usually signals reorganization rather than breakdown.

Mid-caps have reinforced that message. They sit at the top of the performance table year to date, a sharp reversal from last year when they were treated as structural dead weight. When mid-caps lead, it tends to signal rotation within risk rather than an exit from it.

Under the surface, positioning has improved. The speculative community has been reducing exposure, not adding to it. Hedge funds have cut US equity length for four consecutive weeks, relieving some of the crowding that amplified the earlier break. Once that adjustment became visible in the flow data, markets found their footing.

At the same time, the earnings blackout is lifting, opening the door for buybacks to re-enter the tape. In a market where discretionary conviction is thinner, mechanical demand carries more weight.

As long as trend-following systems keep their futures positions in reserve, the technical backdrop appears more balanced than it did during the selloff. Excess has been cleared without structural damage.

The remaining variable sits with households. The pressure test has been delivered. The question is whether retail absorbs it and stays engaged or steps aside. That response will shape the next leg far more than any single macro release.

Bitcoin adds a final tell. Its recent slide has mirrored the behaviour of non-profit tech, rising and falling on the same days for the same reasons. It has traded not as an alternative asset but as a high-beta proxy for risk appetite.

What has changed is its relationship with gold. Since December, that correlation has flipped decisively negative. In this phase, Bitcoin is not functioning as a hedge or diversifier. It is trading as a risk proxy. When that line crosses, it clarifies the regime the market is actually in, regardless of the stories being told.

And Finally Sometimes I’ll spend twenty minutes trying to land the right closing zinger, but this one is hard to beat. I can’t take credit for it. It came from a sharp social media headline which summed it up perfectly. We are moving into the " Revenge of the Dinosaurs” phase of the game.

Oh, yeah, and don’t forget that all of this unfolds just as the macro tape gets louder. Jobs data and inflation prints are about to land.