As the first month of the year draws to a close, investor hopes for a “great rotation” are finally starting to materialize. Everyone is just waiting for the money to show up. The good news is that the stock market has broadened out in January. Ten of 11 S & P sectors are up this month, with only technology down 1%, while health care, energy, financials and Industrials have been leading. S & P Sectors in January Communication Services up 6.6% Health Care up 6.4% Financials up 6.1% Materials up 5.5% Industrials up 5.0% Consumer Discretionary up 4.2% Energy up 4.1% Real Estate up 1.8% Consumer Staples up 1.3% Utilities up 1.1% Technology down 0.5% “This suggests the rally is broadening out and this is exactly what we have predicted and wanted to see,” Nick Raich from Earnings Scout said in a recent note to clients. The bad news: the money still isn’t there There’s an old saying on Wall Street: flows follow returns. That is, when prices of little-loved stocks and sectors start moving, investors eventually start chasing returns. That’s what is still missing. Last year, investors poured money into broad technology funds, while pulling money out of other sectors such as health care, energy and consumer staples That trend has slowed but largely continues into January. ETF sector flow leaders in January Technology $3.7 b. inflow Financials $1.8 b. inflow Utilities $600 m inflow Consumer Discretionary $515 m. inflow Communication Services $422 m. inflow Consumer Staples $419 m. inflow Source: ETF Action If technology has consistent inflows, it’s the opposite for health care and energy: there have been outflows for over a year, and continued to be outflows in January.\ ETF sector flow laggards in January Energy $1.6 b. outflow Health Care $892 m. outflow Materials $696 m. outflow Real Estate $583 m. outflow Source: ETF Action While these outflows are modest, they mirror the trade for the past year. Bottom line: “It’s still all-in on tech,” Todd Sohn, head of ETFs for Strategas, told me. Hurdles beyond tech Technology has become a very “sticky” investment because investors have been rewarded for owning broad tech funds for a long time. The S & P Technology ETF (XLK) has outperformed the S & P 500 four of the last five years and is up 145% since the start of 2020 vs. an 88% gain for the S & P 500. There are two problems for investors who want to get other investors interested in something besides tech: 1) There is a “recency bias,” so investors tend to give a higher weighting to events (returns) that have happened most recently (tech outperforming), and 2) There is a “Gambler’s Fallacy” bias, where investors who have been on a winning streak owning tech stocks believe their luck will not change (overconfidence bias). We know both of these biases cause investors to make mistakes, in this case by not being well diversified. But nobody wants to believe it until something bad happens. Sohn likens investor unwillingness to abandon tech to the five stages of grief: first there is denial, then anger, bargaining, depression, and finally acceptance. Tech investors “are definitely not accepting the tech rally is over yet,” Sohn told me. “I would say we are still in the denial and anger stage. That’s a long way from changing the paradigm.” This calculus is made all the more difficult because we don’t yet know how this DeepSeek news is going to upend the tech investing paradigm. As of now, it is not dramatically moving the dial. Cathie Wood’s ARK fund proves the point Another way to look at how “sticky” tech investors can be is to look at the experience of investors in Cathie Wood’s flagship ARK Innovation ETF (ARKK). From a very small investor base, assets in the ARKK fund exploded in the first months of Covid in March 2020. The price went from the low $40s before topping out around $155 in early February 2021. By the end of 2022, the fund changed hands at $31, an 80% drop in less than two years. But even after the fund topped out and began dropping, investors continued to buy. The fund went from roughly 40 million shares outstanding to over 200 million by June of 2022. At the end of 2023, there were still 180 million shares outstanding. By then the fund was still 65% off its February 2021 high. Only then — nearly three years after the highs — did investors start leaving in large numbers. Today, there are 108 million shares outstanding. Little-loved sectors A lot of people have been waiting for a comeback in health care. Maybe it will come from actively managed funds? Sorry, there just isn’t enough of them to make a difference. Even Cathie Wood’s ARK Genomic Revolution ETF (ARKG) has been slowly losing assets since rocketing up in early 2021. What’s frustrating is that it’s so easy to under-weight technology, should anyone wish. For example, the ProShares S & P 500 Ex-Technology ETF (SPXT), which tracks a market-cap-weighted index of U.S. large-cap stocks excluding the technology sector, has seen a jump in inflows since the end of December. But the fund is small ($187 million), so what this means is a very tiny cohort is making a bet that tech is going to underperform in 2025. But it’s still a small group. Bottom line: there are plenty of ways for investors to get exposure to the market ex-technology. As of now, they still don’t want to.