Tech Tumbles as Wall Street Rotation Gains Speed: Markets Wrap
(Bloomberg) — A weeklong rotation that has seen investors bail from richly priced technology names in favor of more economically sensitive industries picked up speed, sending the Nasdaq 100 to its worst decline in a month while lifting the majority of companies in the S&P 500.
While the US equity benchmark saw its first back-to-back losses in 2026 amid a slide in all “Magnificent Seven” shares, over 300 of its firms actually rose. Small caps continued to outperform, with the Russell 2000 beating the S&P 500 for a ninth straight session — matching the longest streak since 1990.
The first weeks of the year have been marked by a steady rotation out of giant tech companies, whose all-weather earnings made them safe bets at times of economic uncertainty, and into a broader category of firms tuned to improving growth prospects. The dominance of the tech cohort in benchmarks has occasionally allowed their declines to overwhelm indexes.
In a note titled “Not as Bad as It Looks,” Steve Sosnick at Interactive Brokers says a deeper look shows a more mixed market than the declines in major indices might indicate.
“This is a demonstration of what occurs when rotation affects the stocks that dominate key indexes,” he added.
As earnings rolled in, Wells Fargo & Co. sank after missing profit estimates while concern about Bank of America Corp.’s expense outlook offset solid results. Citigroup Inc. slipped as top executives reined in analyst exuberance about the bank racing toward the finish line on key regulatory requirements and reducing its expenses.
“The expectations for this earnings season are very high,” said Matt Maley at Miller Tabak. “If those expectations are not met in today’s stock market — which is priced for perfection — it’s going to create some headwinds.”
Treasuries remained higher after a batch of economic data was seen as unable to justify a shift in expectations for monetary policy. Money markets continued to project the next Federal Reserve rate cut only in mid-2026.
Meantime, the US Supreme Court didn’t rule on challenges to President Donald Trump’s tariffs Wednesday, leaving the world to wait until at least next week to learn the fate of his signature economic policy.
The S&P 500 fell 0.5%. Its equal-weighted version – which gives Dollar Tree Inc. as much clout as Apple Inc. – added 0.4%. The Nasdaq 100 slid 1.1%. The Russell 2000 rose 0.7%. The yield on 10-year Treasuries dropped four basis points to 4.14%. A dollar wavered. Bitcoin jumped about 3.5%.
Metals extended their dramatic start to the year — with gold, silver and copper hitting record highs. Oil fell after the close as Trump said he had been assured that Iran would stop killing protesters, in a signal he could hold off on a threatened military response to the repression of demonstrations.
Investors’ newfound affinity for companies that benefit most from an accelerating economy is in for a tough earnings test.
Robust forecasts will be needed to justify a rotation from tech that is notable after years that saw a handful of megacap AI firms do the heavy lifting. The Fed’s monetary easing has reopened the case for economically sensitive sectors at a time when traders are questioning the durability of the artificial intelligence trade, prompting money managers to diversify away from the bull market’s longtime winners.
Regardless of what happens with tech stocks in 2026, Clark Bellin at Bellwether Wealth says he expects the “broadening story” to play an even bigger role this year as the bull market grinds along.
“Ultimately, we see a bit more downside for the S&P 500, but there are plenty of opportunities on the long-side as this ‘rotation nation’ continues,” said Jonathan Krinsky at BTIG.
A “rotational” bull market is likely after three strong years of returns, currently rewarding investors willing to rotate “down-cap” into value leaders showing relative strength, noted Craig Johnson at Piper Sandler.
After a four-year period of sideways trading, we’re finally seeing the Russell 2000 break out above multi-year resistance and attempt to make another leg higher, noted Bespoke Investment Group strategists.
The gauge has outperformed the S&P 500 since its closing low on Nov. 20, and Bespoke says the best sectors in small caps during this rally have been materials, industrials, consumer discretionary, and technology — all cyclicals.
One of the widest gaps recently between small and large-cap sector performance has been in technology, though. The average Russell 2000 tech stock has far outpaced the large-cap tech sector (cap-weighted) in the span.
“This is another example of the rally broadening out from the previously concentrated gains seen in mega-cap tech,” Bespoke said.
Optimism among clients of Goldman Sachs Group Inc. surged to the highest level in about a year, as confidence in global growth outweighed geopolitical and macroeconomic concerns.
Goldman’s Risk Appetite Indicator climbed to the highest since early 2025, placing it in the 96th percentile historically, data from the bank’s trading desk show. While elevated risk appetite is often seen as a sign that investors are growing over-exuberant, dynamic growth in the US and other regions may justify the bullish outlook this time around, according to Lee Coppersmith, managing director at Goldman Sachs.
A market stall would not be unexpected given the rally, as a pause is becoming commonplace during earnings season in recent quarters due to a combination of a rally coming into earnings, skepticism over the durability of the consumer and the AI trade, and the blackout period for share repurchases, according to Mark Hackett at Nationwide.
“That said, the balance of power remains squarely in the bulls’ favor given the economic strength, earnings acceleration, fiscal and monetary stimulus, and technical tailwinds,” he noted.
On the macro front, US retail sales rose in November by the most since July, fueled by a rebound in auto purchases and resilient holiday shopping. Wholesale inflation picked up slightly on a jump in energy costs, even as prices for services were unchanged.
“This data likely doesn’t change anything for the Federal Reserve, which ended up cutting rates back in December even without knowing this data,” said Bellin at Bellwether Wealth. “We expect the Federal Reserve to remain on hold for the next six months and then cut rates by one or two times in the second half of 2026.”
Economic activity picked up at a “slight to modest pace” in most parts of the US since mid-November, the Fed said in its Beige Book survey of regional contacts.
“This marks an improvement over the last three report cycles where a majority of districts reported little change,” the report said.
Corporate Highlights:
OpenAI signed a multiyear deal to use hardware from Cerebras Systems Inc. for 750 megawatts’ worth of computing power, an alliance that will support the company’s rapid build-out of AI infrastructure. Alphabet Inc.’s Google said its Gemini artificial intelligence assistant can now proactively tap into users’ data across Gmail, Search, Photos and YouTube, an attempt to make its consumer-facing AI product more personalized. Tesla Inc. will stop selling the assistance system it calls Full Self-Driving for a one-time fee and transition entirely to a monthly subscription model, according to Elon Musk. Boeing Co. warned operators in 2011 that a key structural component found cracked in the plane involved in November’s fatal crash of a United Parcel Service Inc. freighter had failed on prior occasions. Airbnb Inc. has hired a former Meta Platforms Inc. executive as its new chief technology officer, as the short-term rental company is investing to include more artificial intelligence and personalization elements into its service this year. Saks Global Enterprises filed for Chapter 11 bankruptcy protection, a humbling turn in a chapter of the iconic luxury retailer’s history marked by mounting losses, flagging turnaround efforts and substantial merger-related debt. A group of banks has slashed the pricing on $8.5 billion of leveraged loans to help fund the buyout of medical-device maker Hologic Inc., underscoring strong investor appetite for risk. DoorDash Inc. and Uber Technologies Inc. have deprived New York delivery workers of more than $550 million in tips after changing the interfaces on their apps, according to findings released in a report from a city agency. Shell Plc and Exxon Mobil Corp. canceled a proposed deal to sell natural gas assets in the North Sea to upstart firm Viaro Energy. The leader of Stellantis NV said that the Franco-American-Italian carmaker intends to maintain its structure as a global company after a sweeping review of its business. Bristol Myers Squibb Co. said about 5% of Opdivo patients are taking a new, easier-to-use version of the blockbuster cancer drug and said it’s on course to meet the company’s goal of adoption by at least 30% of patients in two years. Biogen Inc.’s new at-home Alzheimer’s drug will give the company an edge over rival Eli Lilly Co.’s competing therapy, its chief executive officer said in an interview. Novo Nordisk A/S is back on the hunt for deals to boost its obesity portfolio after losing US biotech Metsera Inc. in a bidding war with Pfizer Inc. late last year. Infosys Ltd. raised its annual sales forecast, signaling that a protracted slump in corporate information technology spending is starting to ease helped by adoption of newer technologies such as artificial intelligence and cloud services. Honda Motor Co. plans to increase production of cheaper gasoline-fueled vehicles this year, a reflection of lower US emissions standards and a new-car affordability crisis. Taiwan Semiconductor Manufacturing Co.’s blistering rally has left investors boxed in, as crowded long positions make it difficult for both bulls and bears to place fresh bets on the stock. Some of the main moves in markets:
Stocks
The S&P 500 fell 0.5% as of 4 p.m. New York time The Nasdaq 100 fell 1.1% The Dow Jones Industrial Average was little changed The MSCI World Index fell 0.3% S&P 500 Equal Weighted Index rose 0.4% Bloomberg Magnificent 7 Total Return Index fell 1.5% The Russell 2000 Index rose 0.7% Wells Fargo fell 4.6% Citigroup fell 3.3% Bank of America fell 3.8% Currencies
The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1644 The British pound was little changed at $1.3435 The Japanese yen rose 0.3% to 158.59 per dollar Cryptocurrencies
Bitcoin rose 3.7% to $97,511.87 Ether rose 5.3% to $3,379.31 Bonds
The yield on 10-year Treasuries declined four basis points to 4.14% Germany’s 10-year yield declined three basis points to 2.81% Britain’s 10-year yield declined six basis points to 4.34% The yield on 2-year Treasuries declined one basis point to 3.52% The yield on 30-year Treasuries declined four basis points to 4.79% Commodities
West Texas Intermediate crude fell 1.7% to $60.14 a barrel Spot gold rose 1% to $4,631.30 an ounce ©2026 Bloomberg L.P.
