By Joy Wiltermuth and Gordon Gottsegen
Investors moving away from tech stocks, and using that money to push other parts of the market to new records
Investors are back betting on the economy, beyond the AI boom.
The Dow Jones Industrial Average and S&P 500 index both scored record finishes Thursday, elevated by the Federal Reserve’s rate cut a day earlier and optimism about the economy that’s finally put a new shine on old-school components of the stock market.
The Dow’s DJIA biggest gainers were Visa Inc. (V), Nike Inc. (NKE) and Goldman Sachs Group Inc. (GS), according to FactSet data. Shares of artificial-intelligence darling Nvidia Corp. (NVDA) were its biggest loser.
“The Fed rate cut – even if there’s been some hand-wringing about dissents – it helps nail down a constructive view of the economy,” said Paul Christopher, head of global investment strategy at the Wells Fargo Investment Institute. “That’s why you are seeing materials, financials and industrial stocks doing better today.”
While the Dow gained 646.26 points, or 1.3%, to close at a record 48,704.01, it’s notable that the equal-weight version of the S&P 500 index XX:SP500EW outperformed the S&P 500 SPX and its lopsided weighting to a few large-cap tech stocks.
Non-tech sectors also finished higher on Thursday. The materials sector, which was the worst-performing sector over the past three months, was Thursday’s top performing sector, with the S&P 500 Materials Sector Index XX:SP500.15 gaining 2.2% on the day. The S&P 500 Industrials Sector Index XX:SP500.20 and S&P 500 Financials Sector Index XX:SP500.40 ended the day at record closes. It was the first time the industrials sector closed at a record since September, according to Dow Jones Market Data.
Beyond rate cuts boosting broader parts of the market, there are also expectations that bigger tax refunds for people and businesses will drive more optimism about the economy.
See: Bigger tax refunds – up to $2,000 on average – could give stocks a boost next year
AI jitters return
The broadening out of the rally followed mixed earnings from Oracle Corp. (ORCL), the new poster child for fears about Big Tech companies splurging on debt in the AI race without a clearly defined endgame.
Investors have been growing increasingly wary about companies borrowing money for their AI buildout plans. Jeffrey Rosenkranz, a portfolio manager at Shelton Capital Management, told MarketWatch that you can see this play out by looking at Oracle’s corporate debt. Oracle’s credit spreads have moved significantly wider in a relatively short period of time.
In turn, these moves in the debt market have influenced equity prices too. Oracle’s stock fell 10.8% on Thursday.
“The market believes they’re going to be the largest borrower for this AI spending boom. They’re concerned it’s stressing their balance sheet,” Rosenkranz said.
But Oracle isn’t the only company getting this investor scrutiny. Other tech companies, like Meta Platforms Inc.( META) and Amazon.com Inc. (AMZN), have seen their shares sell off following news about AI spending.
“There’s some fatigue around the rally in tech,” said Christopher at Wells, noting that tremors around AI plays in August and October intensified in November, as more people questioned when several trillion dollars in expected spending will pay off.
“The theme will return,” he said, “And it will simply be punctuated by these rug-pulling announcements, where the market keeps asking the same questions.”
Read: Oracle drags down Nvidia and other AI stocks as bubble fears intensify
Betting on the economy
A chief concern all year has been both the stock market’s and economy’s reliance on the AI boom.
“Tech has had a really good year, but in the near term there’s a lack of a catalyst,” said Keith Lerner, chief market strategist at Truist Advisory Services, following Oracle’s disappointing earnings. “The market is thinking: ‘What other areas can we look at?’”
With the Fed now having cut its benchmark policy rate to a 3.5% to 3.75% range, it sits closer to a more “neutral” level for the economy.
That’s helped broaden the rally and raised interest in stocks that are more “leveraged to the economy,” said Lerner, noting that rate-sensitive parts of the market, including small-cap stocks, have been doing well.
The small-cap Russell 2000 index RUT closed at a new record on Thursday, adding to its recent string of record closes. The index has traded higher five of the past seven trading days as investors anticipated the rate cut.
“Smaller companies are doing well today in the wake of the yesterday’s Fed rate cut because they typically benefit from lower rates more than larger companies. That’s because when small companies borrow money they are more likely to get an interest rate linked to market rates,” Stephen Callahan, trading behavior specialist at Firstrade, told MarketWatch.
Of note, the Dow outperformed the S&P 500 by 1.1% percentage points on Thursday, marking its largest one-day outperformance since Feb. 27, according to Dow Jones Market Data.
Longer-duration bond yields that finance businesses, households and the economy also have been pretty steady since the Fed’s rate cut on Wednesday, with the 10-year Treasury yield BX:TMUBMUSD10Yat 4.14% on Thursday.
Also of note, while investors were back to questioning AI plays on Thursday, strategists said that doesn’t mean people have been wholesale throwing in the towel on tech.
“To me, it’s more of a normal rotation, and the market is shifting on a short-term basis to broadening theme,” Lerner said. “It’s about confidence in the stability of the economy.”
-Mike DeStefano and Chelsea Ng contributed
-Joy Wiltermuth -Gordon Gottsegen
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12-11-25 1651ET
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