Tech Stumble Sparks Rotation Into Value and Small Caps
Tech stocks have ceded leadership to value and small-cap equities this quarter, marking a stark reversal from their dominant performance earlier in 2024. The Nasdaq Composite’s 1.5% Q4 gain trails the Russell 2000 and Dow Jones Industrial Average by half, as Federal Reserve rate-cut expectations reshape capital flows.
Investor skepticism toward big tech’s AI spending has accelerated the shift. While the S&P 500 retreats from October peaks, Deutsche Bank notes broad participation—the average index component continues climbing. This divergence underscores growing appetite for financials and cyclical sectors over megacap tech valuations.
The rotation cuts both ways: The Nasdaq’s 17% year-to-date surge through September now contrasts with resurgent interest in overlooked corners of the market. As one portfolio manager quipped, ‘The tide lifts all boats—until it doesn’t.’
