That is exactly what happened on Wall Street this week.
While headlines screamed about new record highs for the S&P 500 and the Dow something far more interesting was happening underneath the surface. Money the smart quiet kind was walking away from the mega-cap tech and AI darlings that have dominated portfolios for two years and heading straight into everything else.
The Market’s Silent but Massive Rotation
Thursday closed with the S&P 500 up 0.7% the Dow Jones Industrial Average hitting yet another all-time high and the small-cap Russell 2000 finishing at its best level in years. Champagne corks should have been popping right?
Not quite. The Nasdaq Composite actually fell 0.26% on the same day. That divergence is the story everyone should be paying attention to.
I have been around markets long enough to know that when the broad indexes hit records while the Nasdaq lags it almost always means one thing: rotation. Investors are not fleeing stocks altogether. They are simply tired of paying nosebleed valuations for the same handful of names and are finally looking elsewhere.
What Triggered the Move?
Two words: reality check.
The Federal Reserve delivered the widely expected 25-basis-point cut on Wednesday and signaled a resilient economy ahead. Normally that would send growth and tech stocks soaring. This time it did the opposite.
Why? Because a strong economy means fewer emergency rate cuts ahead and less need for the Fed put that has underpinned sky-high multiples in AI-related names. When the punch bowl is not going to be refilled indefinitely investors start asking harder questions about actual earnings and cash flow.
When growth is plentiful the market stops rewarding promises and starts rewarding profits.
Oracle Just Lit the Match
The spark came from an unexpected place: Oracle.
After the close on Wednesday the database giant reported numbers that on the surface looked decent but buried inside were two scary details: quarterly revenue missed expectations and the company dramatically raised its capital expenditure guidance while signing massive long-term lease commitments for data centers.
Translation? Oracle is spending a fortune to chase the cloud and AI dream but the payoff is still years away. The stock cratered almost 11% on Thursday dragging down everything vaguely related to artificial intelligence including Nvidia and Micron.
In my experience when the second-tier AI enablers start missing the whole narrative wobbles.
Broadcom Added Fuel to the Fire
Thursday after the bell brought another reality check. Broadcom smashed earnings expectations and revealed that Anthropic the Amazon-backed AI startup is its mystery $10 billion customer. Net income nearly doubled year-over-year. By any normal standard that is fantastic.
Yet the stock dropped 4.5% in after-hours trading. The CEO spent much of the call trying to calm fears that Google (its largest customer) might eventually bring more chip design in-house and that rising memory prices could squeeze margins. He also admitted the headline-grabbing OpenAI chip deal is not fully binding.
Investors heard loud and clear: even the best-positioned AI chip companies face serious risks ahead. The rotation accelerated.
Where Is the Money Actually Going?
Everywhere else.
Financials closed at a fresh all-time high led by monster moves in Visa and Mastercard. Regional banks small caps industrials energy even utilities are seeing steady buying. The equal-weight S&P 500 (which treats every stock the same regardless of size) is now outperforming the market-cap weighted version by the widest margin in years.
- Russell 2000 +2.1% on Thursday alone
- S&P Financials sector +1.8%
- Energy sector +1.5%
- Materials and industrials both +1.2%
Meanwhile the Magnificent Seven group that has carried markets since 2023 is flat to down over the past month.
Is This the End of the AI Trade?
Not even close but it might be the end of the blind AI trade.
Artificial intelligence is still going to be transformative. Companies will still spend trillions on infrastructure. But the easy money the part where you could buy any company with .ai in its pitch deck and watch it triple has probably peaked.
From here investors will demand proof of actual recurring revenue reasonable valuations and real competitive moats. That is healthy. That is exactly how bull markets broaden and last longer.
Interesting Side Deals Flying Under the Radar
While tech licks its wounds some fascinating partnerships emerged this week.
A major entertainment conglomerate announced a $1 billion investment into one of the leading generative-AI labs complete with a licensing deal allowing its video generator to train on decades of iconic characters. Translation: Mickey Mouse and friends could soon star in AI-generated shorts. The market barely blinked but that deal hints at how traditional media intends to play offense rather than just sue everyone.
Meanwhile a popular social platform launched a legal challenge against a countrys new under-16 social-media ban citing freedom of political communication. First skirmish in what will be a multi-year global battle over youth access.
What Should Investors Do Right Now?
Three thoughts:
- Do not fight the rotation. If institutions are moving billions into value small-caps and cyclicals trying to stand in front is usually painful.
- Revisit quality companies outside the tech bubble that now trade at reasonable multiples with growing dividends.
- Keep some dry powder. Corrections in over-owned themes often create the best long-term entry points.
Personally I have been adding selectively to financials regional banks and even some old-school industrial names that now yield 3–4% while growing dividends and trade at single-digit P/E ratios. Feels almost too boring to be true but boring has a way of compounding beautifully.
The Bottom Line
We are likely witnessing the early stages of a major regime shift one that could run for quarters or even years. The 2023–2025 period will probably be remembered as the Great AI Mania followed by the Great Rotation of 2025–2027.
Record highs with a crumbling Nasdaq is not a warning sign; it is the market doing its job reallocating capital to where it can earn the best risk-adjusted return in a resilient growing economy.
And honestly? After two years of everything riding on seven stocks it feels refreshing to see the other 493 finally get some love.
The party is not over. It is just moving to a better room.
See you there.
Have you ever watched a party where everyone is crowded around the same few celebrities and suddenly half the room decides to slip out the back door to a quieter lounge that actually has better drinks?
That is exactly what happened on Wall Street this week.
While headlines screamed about new record highs for the S&P 500 and the Dow something far more interesting was happening underneath the surface. Money the smart quiet kind was walking away from the mega-cap tech and AI darlings that have dominated portfolios for two years and heading straight into everything else.
The Market’s Silent but Massive Rotation
Thursday closed with the S&P 500 up 0.7% the Dow Jones Industrial Average hitting yet another all-time high and the small-cap Russell 2000 finishing at its best level in years. Champagne corks should have been popping right?
Not quite. The Nasdaq Composite actually fell 0.26% on the same day. That divergence is the story everyone should be paying attention to.
I have been around markets long enough to know that when the broad indexes hit records while the Nasdaq lags it almost always means one thing: rotation. Investors are not fleeing stocks altogether. They are simply tired of paying nosebleed valuations for the same handful of names and are finally looking elsewhere.
What Triggered the Move?
Two words: reality check.
The Federal Reserve delivered the widely expected 25-basis-point cut on Wednesday and signaled a resilient economy ahead. Normally that would send growth and tech stocks soaring. This time it did the opposite.
Why? Because a strong economy means fewer emergency rate cuts ahead and less need for the Fed put that has underpinned sky-high multiples in AI-related names. When the punch bowl is not going to be refilled indefinitely investors start asking harder questions about actual earnings and cash flow.
When growth is plentiful the market stops rewarding promises and starts rewarding profits.
Oracle Just Lit the Match
The spark came from an unexpected place: Oracle.
After the close on Wednesday the database giant reported numbers that on the surface looked decent but buried inside were two scary details: quarterly revenue missed expectations and the company dramatically raised its capital expenditure guidance while signing massive long-term lease commitments for data centers.
Translation? Oracle is spending a fortune to chase the cloud and AI dream but the payoff is still years away. The stock cratered almost 11% on Thursday dragging down everything vaguely related to artificial intelligence including Nvidia and Micron.
In my experience when the second-tier AI enablers start missing the whole narrative wobbles.
Broadcom Added Fuel to the Fire
Thursday after the bell brought another reality check. Broadcom smashed earnings expectations and revealed that Anthropic the Amazon-backed AI startup is its mystery $10 billion customer. Net income nearly doubled year-over-year. By any normal standard that is fantastic.
Yet the stock dropped 4.5% in after-hours trading. The CEO spent much of the call trying to calm fears that Google (its largest customer) might eventually bring more chip design in-house and that rising memory prices could squeeze margins. He also admitted the headline-grabbing OpenAI chip deal is not fully binding.
Investors heard loud and clear: even the best-positioned AI chip companies face serious risks ahead. The rotation accelerated.
Where Is the Money Actually Going?
Everywhere else.
Financials closed at a fresh all-time high led by monster moves in Visa and Mastercard. Regional banks small caps industrials energy even utilities are seeing steady buying. The equal-weight S&P 500 (which treats every stock the same regardless of size) is now outperforming the market-cap weighted version by the widest margin in years.
- Russell 2000 +2.1% on Thursday alone
- S&P Financials sector +1.8%
- Energy sector +1.5%
- Materials and industrials both +1.2%
Meanwhile the Magnificent Seven group that has carried markets since 2023 is flat to down over the past month.
Is This the End of the AI Trade?
Not even close but it might be the end of the blind AI trade.
Artificial intelligence is still going to be transformative. Companies will still spend trillions on infrastructure. But the easy money the part where you could buy any company with .ai in its pitch deck and watch it triple has probably peaked.
From here investors will demand proof of actual recurring revenue reasonable valuations and real competitive moats. That is healthy. That is exactly how bull markets broaden and last longer.
Interesting Side Deals Flying Under the Radar
While tech licks its wounds some fascinating partnerships emerged this week.
A major entertainment conglomerate announced a $1 billion investment into one of the leading generative-AI labs complete with a licensing deal allowing its video generator to train on decades of iconic characters. Translation: Mickey Mouse and friends could soon star in AI-generated shorts. The market barely blinked but that deal hints at how traditional media intends to play offense rather than just sue everyone.
Meanwhile a popular social platform launched a legal challenge against a countrys new under-16 social-media ban citing freedom of political communication. First skirmish in what will be a multi-year global battle over youth access.
What Should Investors Do Right Now?
Three thoughts:
- Do not fight the rotation. If institutions are moving billions into value small-caps and cyclicals trying to stand in front is usually painful.
- Revisit quality companies outside the tech bubble that now trade at reasonable multiples with growing dividends.
- Keep some dry powder. Corrections in over-owned themes often create the best long-term entry points.
Personally I have been adding selectively to financials regional banks and even some old-school industrial names that now yield 3–4% while growing dividends and trade at single-digit P/E ratios. Feels almost too boring to be true but boring has a way of compounding beautifully.
The Bottom Line
We are likely witnessing the early stages of a major regime shift one that could run for quarters or even years. The 2023–2025 period will probably be remembered as the Great AI Mania followed by the Great Rotation of 2025–2027.
Record highs with a crumbling Nasdaq is not a warning sign; it is the market doing its job reallocating capital to where it can earn the best risk-adjusted return in a resilient growing economy.
And honestly? After two years of everything riding on seven stocks it feels refreshing to see the other 493 finally get some love.
The party is not over. It is just moving to a better room.
See you there.
