In February 2001, technology stocks lost a quarter of their value as the dot-com bubble deflated. For more than 25 years, no month came close to repeating that sector rotation. Then came October.

The State Street Technology Select Sector SPDR ETF (XLK) fell 8.3%, its worst month since March 2025.

Investors dumped the companies powering the AI boom. Instead, they rotated money toward consumer staples, as shown by the State Street Consumer Staples Select Sector SPDR ETF (XLP) rising 10.9% in October, XLP's best month since its December 1998 launch.

The ratio between the two funds jumped 21% in a single month. That is the largest swing in favor of staples since February 2001, when the ratio surged 34%.

Only three months in the pair's 27-year history produced a bigger move: September 2000, November 2000 and February 2001. All three came during the dot-com bust.

XLP/XLK ratio, monthly price change (%). Source: TradingView

Walmart Leads the Staples Rally

Twenty-eight of 31 holdings closed the month in positive territory.

Constellation Brands Inc. (STZ), Walmart Inc. (WMT), Keurig Dr Pepper Inc. (KDP), The Estée Lauder Companies Inc. (EL) and Dollar Tree Inc. (DLTR) all gained more than 17%.

Walmart, the fund's largest holding at 11% of its weight, climbed 18.9%.

Investors were paying for steady cash flows. Bank of America's flow data showed money leaving momentum stocks for value and dividend strategies.

On the Tech Side…

Of the 33 largest XLK holdings, 26 fell in October.

Intel Corp. (INTC) lost 45.3%. Most of that came on Oct. 30, when the stock plunged 28.6%, its worst session since 1974, after a factory disruption forced the company to cut its fourth-quarter outlook.

Memory and storage names followed. Sandisk Corp. (SNDK) fell 33.9%, and Seagate Technology Holdings plc (STX) dropped 30.1%, chip-equipment maker Lam Research Corp. (LRCX) slid 27.2% and Marvell Technology Inc. (MRVL) took a 25.7% hit.

The exception was Accenture plc (ACN), which soared 40.8% after beating fiscal fourth-quarter revenue.

Monthly price change, Sept. 30 to Oct. 30 close. Source: TradingView

A Bubble Bursting Or A Hedge Fund Cleanup?

Jordi Visser, head of AI Macro Nexus Research at 22V Research, does not see a rerun of 2001.

"This has been a rotation. This has been hedge fund deleveraging," Visser said in a video published Saturday.

He pointed to Morgan Stanley prime brokerage data showing "the largest degrossing they've seen" in October. In a degrossing, hedge funds cut long and short bets at the same time, which hits crowded winners hardest.

He also warned against selling on bubble fears. "You have to get used to strikeout, strikeout, strikeout, home run," he said.

Wall Street Strategists Are Still Leaning Bullish

Bank of America Global Research strategists Savita Subramanian and Victoria Roloff said in a Monday note that the S&P 500's "relatively modest 1% decline masked extreme rotation beneath the surface."

"AI fears drove Growth's worst month vs. Value since February 2001," they added.

Yet the bank's Sell Side Indicator, which tracks how much strategists recommend holding in stocks, stayed at 57.2%, the highest since March 2022. The gauge is contrarian, so heavy optimism counts as a warning.

It now sits just 0.3 percentage points from a "Sell" signal. When the indicator has been at this level or higher, S&P 500 returns over the following 12 months were negative 36% of the time, compared with 17% across all readings since 1985.

In 2001, the escape into staples was only an early chapter. XLK went on to lose another 58% over the following 19 months, bottoming in September 2002.

For Visser, October was a forced cleanup inside an intact AI boom. For Bank of America, it is a warning that arrived while strategists were still near peak optimism.