On Thursday, investors sold off major technology stocks and pivoted towards last year's underperformers, resuming the intermittent rotation trend that has characterized the US stock market since the start of 2026. The S&P 500 ended the day in New York essentially flat, after hitting a new record high earlier in the week; meanwhile, the tech-heavy Nasdaq 100 index declined by 0.5%. In contrast, the Dow Jones Industrial Average climbed 0.6%, and small-cap stocks also rebounded, with the Russell 2000 index advancing 1.1%.
"It's the beginning of the year, and everyone wants to put their money into stocks they believe have the greatest potential for appreciation," said Dave Lutz, an equity sales trader and macro strategist at JonesTrading Institutional Services LLC. "Given the high valuations in tech and the theoretical AI bubble, small-cap stocks are the area to invest in, especially with the tailwind of potential Federal Reserve easing." These factors are dampening investor enthusiasm for the once-unstoppable tech giants: by the eighth day of January, the equal-weight S&P 500 index—a proxy for the average stock—was on track to outperform its market-cap-weighted counterpart for a third consecutive month. Should this momentum continue through the month's end, it would mark the longest streak of outperformance in three years.
Concurrently, plans by former President Trump to increase US military spending provided a boost to defense stocks. Following Trump's暗示 that he plans to raise defense spending to $1.5 trillion by 2027, shares of companies like Lockheed Martin (LMT.US), Northrop Grumman (NOC.US), and Kratos Defense & Security Solutions (KTOS.US) surged. "Trump's high activity on social media, such as proposing a ban on institutional home purchases, has led to weakness in housing-related stocks and shares of large companies that buy homes," said Thomas Thornton, founder of hedge fund Telemetry LLC. "However, his offhand remarks about increasing the defense budget have offset this impact."
In other developments, following a meeting with executives, US Energy Secretary Chris Wright stated that ConocoPhillips (COP.US), Exxon Mobil (XOM.US), and other American oil companies are exploring potential roles they could play in helping to revitalize Venezuela's energy industry. Separately, US labor productivity accelerated in the third quarter, reaching its fastest growth rate in two years, providing further evidence that efficiency gains are helping to curb inflationary pressures stemming from wage increases.
Amid concerns about a potential slowdown in AI-driven trading, Wall Street strategists are searching for new catalysts to propel the US stock market's bull run. Goldman Sachs has identified companies poised to benefit from increased spending by middle-class consumers: healthcare providers, materials producers, and manufacturers of consumer staples. Another team at the bank cautioned that stocks are trading at a significant premium and face risks if concerns about economic growth intensify. The team, led by Christian Mueller-Glissmann, wrote, "The macroeconomic environment could become less favorable in the second half of the year. Given high valuations, a rising risk of a US recession would increase the likelihood of a bear market steepening."
In the realm of artificial intelligence, China plans to approve imports of Nvidia's (NVDA.US) H200 chips as early as this quarter, according to people familiar with the matter, which would restore the company's access to this critical market. In other individual stock movements, Alphabet (GOOGL.US) shares rose after Cantor Fitzgerald upgraded the tech giant's rating to "Overweight." Soho House & Co. (SHCO.US) shares fell after the members-only club operator indicated it faces a funding shortfall as the company prepares for a potential sale. Jefferies (JEF.US) shares declined after the investment bank reported fourth-quarter earnings per share that fell short of analysts' average expectations.
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