U.S. equities surged to fresh records on Thursday as investors embraced a broader market rotation, pushing the S&P 500 and Dow Jones Industrial Average to new all-time closing highs. The rally extended the momentum sparked by the Federal Reserve’s quarter-point rate cut a day earlier, reinforcing expectations of a smoother monetary path into 2026. Yet beneath the surface strength, sector-level divergences reveal a market recalibrating its convictions about the durability of the AI trade.

While the Russell 2000 also claimed a new peak, the Nasdaq Composite slipped 0.26%, held back by weakness in heavyweight technology names. The divergence underscores a reallocation underway as investors shift capital from high-valuation AI beneficiaries to financials, industrials, and other cyclicals more directly tied to economic resilience.

Tech Under Pressure as Oracle’s Earnings Reverberate

Oracle’s sharp 11% decline became the defining drag on tech sentiment. The company delivered weaker-than-expected revenue and signaled heavier capital expenditure commitments tied to its AI infrastructure build-out. Those disclosures reignited concerns that the sector’s AI-driven capex boom may weigh on profitability before material revenue offsets emerge. Oracle’s decline also pressured Nvidia and Micron, two key barometers of market sentiment toward semiconductor demand and data-center build-outs.

After the closing bell, Broadcom extended the tech-sector softness, falling 4.5% in extended trading. The chipmaker’s earnings beat consensus expectations, and net income nearly doubled year-over-year, but investors focused on management’s less reassuring commentary. CEO Hock Tan did little to dispel worries that Google could bring more chip capabilities in-house, a trend that has broader implications for custom silicon markets. Rising memory costs and ambiguity surrounding its OpenAI agreement added further uncertainty.

As a result, the AI trade—while far from broken—faces renewed scrutiny regarding margins, scale, and the timeline for monetization.

Rotation Strengthens as Financials Hit Records

The market’s resilience lies in the breadth of leadership outside technology. Financials closed at a record, helped by sizable gains in Visa and Mastercard. With the Fed signaling confidence in economic durability and pushing back against expectations of near-term reacceleration in inflation, investors have found renewed comfort in cyclical and rate-sensitive sectors.

The Fed’s messaging further supported risk appetite by framing the U.S. economy as resilient enough to withstand gradual policy normalization. The combination of stable employment, moderating inflation, and lower front-end yields improved the backdrop for banks, payments companies, industrials, and small caps—each of which benefits from broader economic participation.

Broader Market Context: A Strong Finish to the Year

Other developments added to the evolving market landscape. Disney revealed a $1 billion investment in OpenAI alongside a licensing agreement to bring its iconic characters to Sora, signaling a more assertive embrace of AI-driven content generation. Meanwhile, Reddit challenged Australia’s new social-media restrictions for minors, a case likely to shape global debates on platform governance and speech.

Looking into the holiday season, market conditions appear supportive: rate cuts are underway, economic data remain stable, and sector leadership is broadening. What remains uncertain is whether the tech pullback becomes a temporary shakeout—or a preview of more selective AI optimism in 2026.