WHEN THE LANDSLIDE COMES TO TOKYO

A letter on cycles, concentration, and what the market is finally learning to do.

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On February 8th, Japan's Prime Minister Sanae Takaichi secured a historic election victory, and the Nikkei 225 surged 5.7% to an all-time high. The Kospi followed with a 4% jump. Bitcoin and gold extended their rally. The tape tickers—if we still used them—would have sung a simple song: risk-on, broad-based, patient.

This is the sound of the market learning to rotate.

For two years, we've lived inside a cathedral of concentration. The Magnificent Seven. The Nasdaq. The handful of semicon names that could explain, at any given moment, 60-70% of market leadership. It was efficient, in a way. You didn't need to think about aerospace. You didn't need to think about retail. You didn't need to think about Japan.

Then, quietly, in the opening weeks of February, that stopped working.

The Rotation Nobody Wanted to Admit Was Happening

Markets don't announce their regime changes politely. They hint at them, mumble about them, hope nobody notices. For the past month, the whispers have been growing louder. International markets maintained substantial outperformance with MSCI Emerging Markets surging 8.02% and MSCI World ex-US gaining 4.75% in January—both outpacing the S&P 500's return. Value stocks have outpaced their growth counterparts, a reversal from last year's pattern of mega-cap tech dominance.

When a market that has been narrow and concentrated for this long finally begins to spread, the initial moves seem almost tentative. A quarter-point here. A few hundred basis points there. But by late January and early February, something structural was shifting. Energy, healthcare, and industrials have all outpaced tech so far this year.

The election in Japan didn't cause this rotation. Japan merely blessed it.

Takaichi's victory came at a moment when the world was already tired of waiting in line for Nvidia earnings. When investors were asking—not loudly yet, but asking—whether there were other places to deploy capital. When the concentration of the S&P 500 had reached levels not seen in decades: ten companies comprising 40% of the index.

That is the mathematical definition of a system looking for an exit.

The Pattern We've Seen Before

History doesn't repeat, but markets do rhyme. And the rhyme we're hearing now is familiar to anyone who lived through the late 1990s, or the mid-2000s, or really any period when one narrative—Technology, Subprime, Mega-Cap AI—became the only narrative the market wanted to hear.

The pattern follows this script:

First comes genuine innovation. The technology works. The earnings come. The multiple expansion is justified.

Then comes extrapolation. Everyone owns the winners. Capital becomes locked in. Competition is considered rude. Smaller companies are seen as distractions.

Then comes inevitability. It becomes difficult to imagine a world where this doesn't continue forever. Conferences feature only speakers who believe in the narrative. Contrarians are dismissed. Risk is redefined downward.

Then comes the day when someone—often someone in Japan, or Europe, or some other part of the world that doesn't conform to the Nasdaq's ideology—makes a decision. They buy something else. They rotate into value. They decide that 100x earnings multiples on companies that haven't yet proven the sustainability of their AI revenue models might not be the place to put all the money they're going to need for the next ten years.

And then everyone else asks: why are we all standing in the same corner?

Asian stocks climbed to a record as a broad advance across risk assets took hold, with gains in tech stocks, Bitcoin and gold extending momentum from Friday's rally on Wall Street. Note the order: stocks, then Bitcoin, then gold. This is the cascade pattern. The leadership rotates outward, and the other asset classes follow. It's not a crash. It's a disaggregation.

The Data Is Quietly Insistent

Earnings remain strong. With approximately 33% of S&P 500 companies reporting, 75% have beaten earnings per share (EPS) estimates, marking the 10th consecutive quarter of earnings growth for the index with a blended rate of 11.9%. Revenue growth of 8.2% represents the 21st consecutive quarter of positive revenue growth.

This matters. The rotation isn't happening because the economy is breaking. It's happening because the economy is healthy enough that people can afford to diversify.

The labor market, while softening slightly at the margins—payroll growth is expected to have risen from 50k in December to 70k in January, with the unemployment rate holding at 4.4%—remains broadly resilient. Inflation data have been well-behaved. The Fed is on pause at 3.5%-3.75%, with markets pricing in two rate cuts for later in 2026, after a new Fed Chair takes office in May.

We are not in a crisis. We are in a normalization. And normalization, after years of extremity, always feels like a small death to those who profited from the extremity.

What Happens Next

For the rest of February, the tape will be written by data—retail sales on the 10th, nonfarm payrolls and CPI on the 11th and 13th respectively—but the structural story is already written. Markets will continue to test whether the rotation from concentration to breadth can sustain.

Some will call this the "peak AI." That's lazy. What's actually happening is the market learning to ask: when the infrastructure of AI has been built by six companies, where do the economic rents go next? To the users of AI. To the beneficiaries of AI. To companies making turbines for the data centers. To semiconductor equipment makers. To the parts of the world that haven't participated in a single mega-cap rally yet.

The Nikkei didn't surge 5.7% because Sanae Takaichi is a genius. It surged because the global system of capital, tilted for two years toward one corner of the market, finally found permission to tilt somewhere else.

Japan provided that permission. But it came from all of us, ready or not.

The next few months will tell whether this is a durable shift or a relief rally—a real rotation or a breather before the concentration resumes. The bonds will tell you which one it is. Watch the yield curve. Watch the dollar. Watch whether credit spreads widen or tighten.

But for now, at this moment, at the opening of the second month of 2026, the market is finally doing what healthy markets do: reconsidering. Redistributing. Reaching for the exits.

It's a small thing. But in the language of markets, it's everything.