U.S. equities struggled for direction on Friday as investors rotated out of major tech and AI names, raising questions about whether Wall Street is entering a new phase of market leadership. Despite pressure on the Nasdaq, the broader market held firm, supported by expectations that the Federal Reserve’s rate-cut cycle will extend into 2026. Meanwhile, corporate developments—from Broadcom’s disappointing outlook to Lululemon’s leadership shake-up—added to the shifting sector dynamics that traders are attempting to price in.

The latest session underscored a growing divide across U.S. markets. Tech giants that dominated performance earlier in the year are now contending with valuation fatigue and doubts over near-term returns from massive AI infrastructure spending. At the same time, non-tech sectors tied to consumer resilience, financial services, and rate-sensitive industries are gaining renewed attention as investors search for more balanced exposure.

Market Rotation Gains Momentum

The Nasdaq 100 remained under pressure, set to open down 0.6% following another wave of selling across semiconductor and AI-linked names. Broadcom fell 6% in premarket trading after issuing a softer sales outlook that reinforced concerns about the pace of monetization in the AI supply chain. Nvidia, Micron and CoreWeave also traded lower, extending losses triggered by Oracle’s disappointing revenue report earlier in the week.

The move reflects a deeper recalibration in investor psychology. After two years dominated by the “Magnificent Seven,” traders appear increasingly sensitive to valuation risk, cash-flow pressures, and the long lead time required for AI investments to translate into earnings. The current rotation mirrors similar episodes in past bull markets, when leadership broadened as early winners faced fundamental and psychological ceilings.

Broader Indices Hold Steady as Fed Optimism Builds

Despite the weakness in tech, the S&P 500 managed to stabilize, slipping just 0.2% after hitting a fresh record close the previous day. The Dow Jones Industrial Average signaled a stronger open, supported by financials, industrials and consumer names that stand to benefit from a steadier rate environment.

Market sentiment remains underpinned by growing confidence that the Federal Reserve is entering a sustained easing cycle. With Chair Jerome Powell emphasizing that policy is no longer actively restraining the economy, investors are positioning for lower yields in 2026 and a gradual rebalancing away from mega-cap concentration risk.

The US500 index, a broad gauge of U.S. equities, rose to 6,907 on December 12, marking a 0.08% gain on the session. It is up 2.51% over the past month and 14.14% from a year earlier, sitting just below its all-time high of 6,921.75 reached in October.

Corporate Developments Add to Market Divergence

Lululemon surged 9% in premarket trading following the announcement that CEO Calvin McDonald will step down at the end of January. While U.S. sales have softened, the company’s international momentum and early steps to adjust leadership strategy were viewed positively by investors seeking growth stories outside technology.

Meanwhile, tech-exposed stocks faced intensified scrutiny as analysts reassessed the sustainability of AI-driven capital expenditure amid rising funding needs and uncertain payoffs. This divergence highlights the expanding gap between companies with near-term earnings catalysts and those reliant on longer-dated innovation cycles.

What Comes Next for Investors

If the rotation out of tech continues, markets may experience a healthier distribution of returns after several years of extreme concentration. However, lingering uncertainty around AI profitability, the Fed’s policy path and global economic resilience could introduce more volatility in the weeks ahead. Investors will be watching whether the Nasdaq stabilizes or if defensive and value-oriented sectors continue to pull leadership away from megacaps as 2026 approaches.