Investor Knowledge
November 05 2026

Technology Volatility is Accelerating Amid Ongoing Market Rotation

5 minutes

Global equity markets have experienced a sharp change in leadership. The U.S. midterm election results appear to have catalyzed recent market activity, with headline concerns revolving around Democratic Party support of the Artificial Intelligence (AI) buildout at the state and local levels. While the election has created a near term spark, the rotation has been developing for some time. Since early October, pressure has built across parts of the Information Technology Sector and AI infrastructure complex as investors reassessed crowded positioning, valuations, financing requirements and expected returns on capital. The latest move is therefore better understood as an acceleration of an existing trend, rather than a sudden rejection of technology or risk assets. While AI-related names have sold off in fits and starts since mid-June, value stocks, defensive stocks, and high dividend paying names have generated positive returns.

Importantly, the fundamental backdrop remains constructive. Reported earnings have been strong, earnings estimates have continued to be revised higher, and companies have generally delivered positive earnings surprises. This strength suggests that the market move is being driven more by portfolio repositioning and changing leadership than by a broad deterioration in corporate fundamentals.

The AI Opportunity is Evolving

AI remains a significant long-term investment theme, supported by rising compute demand and continued capital spending across data centres, semiconductors, power and networking. Periodic adjustments are healthy in a large investment cycle because they can prevent enthusiasm from becoming speculative.

The U.S. midterm elections may create greater differentiation within the AI ecosystem. Federal policy may change less than headlines imply, as trade, foreign policy and many regulatory decisions remain heavily influenced by the executive branch. More immediate effects are likely to occur at the state and local levels through permitting, grid access, water use and utility costs. New rules could modestly slow projects, raise costs or influence where data centres are built, but they are unlikely to stop the broader buildout.

This creates a more selective environment. Well-capitalized hyperscalers and diversified supply-chain companies should be better placed to manage higher costs and project delays. More leveraged developers with concentrated exposure to individual projects or jurisdictions may face greater pressure. Lower bond yields could also partly offset higher development costs by reducing financing expenses. The result is likely to be bifurcation across AI, not the end of the investment cycle.

Market Leadership is Broadening

The changes within Information technology are occurring alongside a wider rotation. Financials may continue to benefit from an existing deregulatory backdrop and potential merger activity, although consumer finance could face greater scrutiny under an affordability-focused U.S Congress. Health Care may see support if previously planned funding reductions are moderated, while drug pricing and other costs remain areas of bipartisan attention. Consumer businesses could benefit if lower energy costs improve household purchasing power, and energy-importing regions, including parts of Europe, could gain from easing oil prices.

This does not mean every former laggard will become a sustained leader. It does mean that headline indexes may conceal meaningful differences among sectors, industries and companies. With earnings still supportive, active security selection is increasingly important in determining which businesses can translate economic and policy changes into durable earnings growth.

Positioning Across Asset Classes

Multi-Asset

TD Asset Management Inc. (TDAM) entered today's selloff having already reduced tactical portfolio risk. Following a strong run in risk assets, the TDAM investment teams reduced exposures where valuations and market enthusiasm had moved ahead of fundamentals, while maintaining long-term strategic positioning. Rather than making a binary market call, portfolios were deliberately broadened and capital was shifted toward areas with more attractive risk-reward characteristics. These proactive changes strengthened resilience and left asset allocation solutions better positioned for renewed volatility.

Fixed Income

Today's equity selloff, and the trend since October, demonstrate why core bonds matter when growth expectations wobble. Since U.S. Treasury yields and the Nasdaq Composite Index peaked on October 5-6, U.S. 10-year Treasuries have returned approximately 4% as yields declined 48 basis points, while the Nasdaq Composite Index has fallen roughly 14%.1 This is a clear example of diversification at work. Elevated starting yields make these defensive characteristics more attractive, which is one reason the TD Wealth Asset Allocation Committee recently increased its fixed income targets.

Private Markets

The current technology selloff is not affecting TDAM's private market portfolios. TDAM's private credit strategies do not actively lend to technology companies. Within real assets, portfolios own and operate real estate and essential infrastructure supported by long-term contractual cash flows. In periods of greater uncertainty or speculation, private markets can provide differentiated performance while continuing to generate stable, predictable income and potential income growth.

Equities

TDAM's public equities markets strategies are designed with resiliency in mind. We have noted that relatively benign returns over the third quarter of the year have masked a sharp rotation within indices, particularly with regard to AI infrastructure companies. Our investment philosophies and processes remain unchanged, focused on the factors that drive companies' share-price growth or shareholder yield over time.

In complex markets, no single style or research lens captures every opportunity. TDAM brings together fundamental, quantitative and technical perspectives across sectors, regions and asset classes to challenge assumptions, distinguish meaningful signals from noise and identify where market expectations may have moved too far. Broad expertise does not eliminate volatility. Rather, it helps investors interpret it and make informed decisions as technology investment, U.S. policy and global market leadership evolve.

Key Takeaways

The current environment is best understood as an acceleration of an ongoing rotation and recalibration, not simply a one-day technology selloff.

Diversification is working across public and private markets. Proactive reductions in tactical risk, increased fixed income exposure, and resilient private market cash flows can help portfolios navigate changing leadership without abandoning long-term objectives.

Disclosures:

For institutional investment professionals only. Not for further distribution.

1Source: Bloomberg Finance L.P. As at November 5, 2026.

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