How to understand the start of the global market this year? "Affordability" is the overarching narrative for 2026: the "main street" needs to win once, AI narrative undergoes a huge transformation, and the yen is "key"

The global markets at the start of 2026 are experiencing a paradigm shift.

According to Wind Trading Desk, on February 12th, the research team at Bank of America Securities issued a report stating that money is moving away from the star assets of the past few years.

Since the beginning of the year, gold has risen 13.4%, oil 9.5%, international stocks 8.7%. U.S. stocks have fallen 0.2%, and Bitcoin has plummeted 25%.

The core factor behind this is the politics of “affordability.” The Trump administration is aggressively shifting policies to appeal to “Main Street” (ordinary people) rather than “Wall Street” (the elite). Bank of America emphasizes that this means three key changes:

First, the 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 Japanese yen and Japanese stocks has turned positive for the first time since 2005, a feature of a structural bull market. However, rapid yen appreciation (breaking below 145) could trigger global deleveraging.

Under the politics of “affordability,” “Main Street” assets rise

The current market switch is a response to political measures addressing the issue of “affordability.”

The report points out that under pressure from midterm elections, policies have shifted toward alleviating people’s livelihood burdens, triggering a major asset rotation from “Wall Street” to “Main Street.”

The winners are “Main Street” inflationary prosperity assets. Since late October last year, assets benefiting from the global manufacturing recovery and inflation logic have performed strongly. Silver (+56%), Korea KOSPI (+34%), Brazil stocks (+30%), materials (+25%), energy (+20%), US regional banks (+19%).

(Four-week fund inflows into Korean stocks hit record highs)

The losers are “Wall Street” wealth bubble assets. Conversely, previously favored tech giants and speculative assets have faced sell-offs. “Big Seven” stocks (-8%), Bitcoin (-41%), and software sectors impacted by AI (-30%).

The essence of this rotation is that the market is pricing in a shift of policy focus from financial services to real economy manufacturing, from capital gains to consumer costs.

The report suggests that only major policy or earnings events—such as a bank stock crash causing credit spreads to spike, AI giants cutting capital expenditure, or tariff changes—could reverse this trend.

The shift in the AI narrative, from “awe” to “impoverishment”

Market attitudes toward artificial intelligence are changing, from blind enthusiasm (AI-awe) to examining its costs and disruptive effects (AI-poor).

Data shows that the current AI arms race is costly. Over the past five months, debt issuance by large AI companies has reached $170 billion, compared to an average of $30 billion annually from 2020-2024. Their corporate bond spreads are also rising, indicating tightening financing conditions.

(U.S. large corporate bond spreads)

In Q1 2025, India’s tech sector (Infosys, TCS) became the first industry disrupted by AI, with stock prices still struggling. This week, the impact of AI disruption has spread to insurance brokers, wealth advisors, real estate services, and logistics.

The report believes that under the current “AI impoverishment” narrative, only significant earnings or policy events—such as a major AI company announcing capital expenditure cuts—can trigger a reversal of market sentiment and capital flows.

In the short term, this could intensify concerns about slowing capital expenditure in the AI supply chain and downward revisions of growth expectations, possibly leading to sharper sell-offs in related stocks (especially hardware, semiconductors, software).

However, from a market cycle perspective, such landmark events often occur at the “extreme” or “consensus” stage of a trend. When the most aggressive investors start to withdraw, it may signal a transition from an “unlimited arms race” to a new phase focused on profitability and efficiency.

Yen as a key to global liquidity

The movement of the yen has become a critical variable influencing global asset pricing.

Bank of America emphasizes that the correlation between the yen and the Nikkei index has turned positive for the first time since 2005, a highly significant technical signal.

(Correlation between the Tokyo Stock Exchange Index and the yen turning positive)

Historical experience shows that when a country’s currency and stock market rise together, it often signals a long-term bull market, as seen in Japan (1982-1990), Germany (1985-1995), and China (2000-2008).

But the report adds that a rapid short-term strengthening of the yen could increase selling pressure on cryptocurrencies, silver, private equity, software, and energy assets.

More importantly, it warns that a disorderly surge in the yen (e.g., USD/JPY falling below 145) must be avoided. Rapid yen appreciation has historically coincided with global deleveraging, which could impact liquidity in financial markets worldwide.

Therefore, the U.S. government is unlikely to allow 30-year Treasury yields to break above 5%, which also explains why long-term U.S. bonds remain the best risk hedge for 2026.

The era of major rotations is here

Currently, Bank of America’s “bull-bear indicator” reads 9.4, still in the warning zone for a “sell” signal (threshold >8). This indicator is a contrarian sentiment gauge: the higher the value, the more euphoric the market, the more crowded the positions, and the greater the short-term risk of a correction.

Investors should pay close attention to the upcoming fund manager survey data on February 17: cash levels have sharply risen from a historic low of 3.2% to over 3.8%, bond allocations have shifted from a net underweight of 35%, tech stocks have moved from a net overweight of 17% to neutral, and consumer staples’ net underweight has narrowed from 30%.

The report reviews five major “great rotations” over the past half-century, each triggered by major political, geopolitical, or financial events.

Examples include the 1971 breakdown of the Bretton Woods system, Volcker’s anti-inflation measures in the 1980s, and the QE following the 2009 global financial crisis—all of which profoundly changed asset leadership patterns.

The report believes we are at the beginning of a new great rotation, with emerging markets and small-cap stocks set to lead:

Small-cap value stocks outperform large-cap growth stocks:

• The logic is that rising populism, manufacturing resurgence, and the high costs of the AI arms race are unfavorable for large tech giants.

(Relative prices of U.S. large-cap growth vs. small-cap value stocks)

• If the U.S. government plans to cap 30-year Treasury yields at 5%, this would be a major turning point favoring small-cap value stocks over large-cap growth.

The U.S. market shifts toward emerging markets:

• A new global order requires a new bull market. The era of dollar dominance may reverse, and a “buy everything except the dollar” trade could emerge.
• Especially in China and India, the world’s top four economies, which are still heavily underweighted in global asset allocations.

(Relative prices of emerging market stocks vs. U.S. stocks, in USD)

• Chinese banking stocks have quietly risen to an 8-year high, possibly signaling an end to deflation in Chinese assets (banks, real estate, consumption) and a “great rotation” from bonds to stocks.

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