- AI jitters and rising rates are fueling a market rotation into once beaten-down defensive and real-economy stocks
- Steel Dynamics, Nucor, Kroger, and Kimberly-Clark face key earnings reports and corporate catalysts in the days ahead
- Earnings commentary, AI infrastructure demand, dealmaking developments, and even midterm election outcomes could determine whether the rotation has staying power
October has already provided a scare for tech investors. Information Technology was the lone S&P 500 sector in the red month-to-date coming into Friday, the 16th. AI jitters, rising interest rates, concerning CDS spreads, and even regulatory worries cooled the once red-hot megatrend.
Will recent price action prove to be yet another buyable pullback? Or is something more sinister at play? Chances are, we’ll find out much more over the coming weeks as Q3 reports roll in.
Healthy Rotation, Or a Messy Q4 Equity Backdrop?
For now, momentum traders find themselves strolling down unusual aisles. Indeed, as I.T. lags, defensive and rate-sensitive spaces such as Consumer Staples, Utilities, Health Care, and Materials have caught bids. Simply scan through price charts of blue chips in these real-economy sectors, and you’ll come across many apparent bottoming patterns.
Now, normally, the bulls don’t want to see the safest parts of the global stock market outperforming risk-on areas. Historically, when defensives lead within a choppy tape, the chances increase that a durable bear market may be lurking around the corner.
Today, though, it could simply be one big rotation, a move out of high-growth AI stocks and into equities that were beaten down too much by the sharp interest rate climb from late August through the early days of October. After all, they say rotation is the lifeblood of bull markets. We’ll see how it all shakes out. No matter the consequences, Q4 will probably continue to provide many compelling storylines.
Narratives may take more twists and turns in the following sessions, too. Zooming in on a pair of the aforementioned non-tech sectors, several stocks could see unusual volatility that traders should keep on their radar. And while they don’t drip AI, recent company announcements show that data centers, large language models, and agentic programs have long tentacles that reach far beyond Silicon Valley.
Steel Dynamics & Nucor: Bearish Q3 Preliminaries
First up: Steel Dynamics (STLD). The $35 billion market cap Materials sector company reports Q3 results after the bell on Monday, October 19. The Indiana-based cyclical firm has seen its stock surge 65% in the past year, boosted by big nationwide construction spending spurred by what else? Data centers.
But it and industry peer Nucor (NUE) hit the skids in mid-September following soft preliminary earnings numbers. STLD executives said they expected third-quarter earnings of $5.34–$5.38 per share, far shy of consensus estimates at the time. Compared to a year ago, however, even the low-end number would represent a near-doubling of operating EPS.
Managing Expectations
Could the bar be low enough for STLD to hurdle with flying colors? It remains to be seen, but the stock has paced itself for the better part of six months. After peaking at $289 in mid-June, STLD has flirted with its 200-day moving average since the middle of the year after a smelter-hot rally that began in August 2025 at $120. A new CEO is at the helm, and trade policy matters greatly for this steel company. Monday’s report and earnings call will be of particular interest.
As for Nucor, the $58 billion Materials company’s shares have enjoyed (and then weathered) similar price developments. Its Q3 report is confirmed for Monday, October 26, BMO. The North Carolina-based name announced a $105 million expansion of its Indiana utility towers facility to add capacity to manufacture poles and other products to support power transmission and distribution infrastructure. A healthier grid is critical to the AI buildout. Comments from management will be particularly practical in light of recent AI news.
Kroger: Contentious Investor Day, Amid Soft Sales, Rising Costs, and a Botched Merger
Next, Kroger (KR) has their cart full in the days ahead. The country’s largest stand-alone retail grocer comes through the earnings checkout line in early December. In the here and now, it hosts an Investor Day on Tuesday, October 20. Just recently, on October 12, the Consumer Staples player announced it would eliminate 3,000 corporate jobs (37% of its ~8,200 corporate workforce) as part of a three-year restructuring.1
The headcount cut is an AI-efficiency byproduct. Cost-conscious consumers pressure its net sales, while record-high diesel prices surely drive up the expense side of the ledger as the holiday season approaches.
Shares are down 9% over the past 12 months, though KR has rallied since the start of the second half. Investors will seek answers on Tuesday regarding the saga between the company and rival Albertsons Companies (ACI). Reported last week, Albertsons asked a Delaware court to force Kroger to pay as much as $9.3 billion over the dissolved $24.6 billion merger between the two industry stalwarts. That nixed deal has been an overhang for years, potentially making the Investor Day a little spicier.
Kimberly-Clark: Executives Appear Sanguine Ahead of a Potential Kenvue Integration
Finally, Kimberly-Clark Corporation (KMB) issued a bullish preliminary earnings statement on Thursday, October 15, ahead of full Q3 results confirmed for Thursday, November 5, BMO. The often-quiet Consumer Staples stock surged nearly 5%, almost its best day since April 2024.
Shareholders needed the boost, as KMB was down 18% YoY beforehand. Specifically, KMB now expects to earn an adjusted profit of $1.70 per share, about $0.11 above estimates, with net sales of $4.134 billion (down 0.4% from a year ago but above forecasts).
KMB has M&A on its mind as well. The $33 billion market cap company received conditional approval from the European Commission on October 13, for its $40 billion (or $48.7 billion including debt) acquisition of Kenvue (KVUE). Paired with the upbeat earnings pre-announcement, it could be a successful end to the year, assuming the deal is finalized in the coming months.
The Bottom Line
Plenty of story-stocks and recent alpha generators are outside AI glamor companies. Absolute and relative strength have ticked up in real-economy sectors that were beaten up as investor dollars flowed to tech. Macro conditions, such as ebbing Treasury rates and the upcoming U.S. midterm elections, are wildcards. Still, traders and portfolio managers should listen up for commentary in perhaps unusual places this earnings season.
Sources:
1 Kroger To Reportedly Eliminate 37% Of Corporate Workforce In Operations Overhaul, Stocktwits, Yahoo Finance, Shashank Nayar, https://finance.yahoo.com
Twitter: @ChristineLShort
The author may hold positions in mentioned securities. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
