Rotation Drives Divergence as Tech Sinks, Broader Market Holds Ground

Markets extended a rotation out of megacap tech stocks, dragging the Nasdaq to its worst day in a month. Yet beneath the surface, gains in over 60% of S&P 500 stocks and continued small-cap outperformance signaled a broadening rally. Financials weighed on the major averages as early bank earnings disappointed, while strong retail sales and stable inflation data kept Fed rate expectations steady. Commodities rallied, with gold and silver hitting new records, and bitcoin surged again.

Key Headlines & Market Movers:

• Tech Selloff vs. Broader Strength: The Magnificent Seven pulled the Nasdaq 100 down 1.1%, overshadowing gains in most S&P 500 names. The equal-weighted S&P 500 rose 0.4%, and small caps led again, marking a ninth straight day of outperformance. The shift reflects investors reallocating from high-valuation tech into economically sensitive areas like industrials, materials, and consumer discretionary, amid confidence in growth resilience.

Mixed Bank Earnings Pressure Financials: Wells Fargo, Citigroup, and Bank of America all dropped following earnings that fell short of expectations or raised cost concerns. The sector remains under pressure after Trump floated a 10% cap on credit card interest rates, and JPMorgan also continued to slide. Expectations for a strong earnings season are high, increasing downside risk if results or guidance underwhelm.

• Economic Data Keeps Fed on Hold: Retail sales rose 0.6% in November, topping estimates and reflecting solid holiday and auto demand. Producer prices edged up less than forecast, with stable services inflation. Together, the data supports the view that inflation is contained without derailing growth, reinforcing current expectations for the Fed to stay on hold until mid-year.

Gold, Silver, and Bitcoin Rally: Safe-haven assets surged, with gold and silver hitting all-time highs amid geopolitical uncertainty and investor hedging. Bitcoin jumped nearly 4%, topping $97,000, with growing investor appetite for alternative assets. Strategy (MSTR) gained as a key crypto proxy. The broader rally in metals and crypto hints at lingering caution despite bullish equity sentiment.

S&P 500 Sector Performance

Looking Ahead

The market’s rotation theme is gaining traction as investors seek exposure beyond the tech giants that led in 2023. Earnings season is now in focus, particularly whether cyclical sectors can back up their recent strength with robust outlooks. With rate cut expectations steady and economic data supportive, the backdrop remains favorable, though short-term volatility may rise if high expectations go unmet.

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