The Great Rotation: Moving Beyond Big Tech

Fresh news and strategies for traders. SPY Trader episode #1458. The market is experiencing a significant rotation, shifting leadership away from the 'Magnificent Seven' megacap tech stocks toward smallcap and cyclical sectors like Financials and Industrials. As AI stocks face margin pressure and the Fed signals potential rate cuts, this episode outlines a tactical playbook: broaden exposure (VTI), overweight cyclicals (XLI, XLF), and hedge volatility with defensive fixed income (AGG, BND).

Episode Transcript

(00:00):
Welcome back to Spy Trader , the podcast that helps you navigate the volatility and chart a course for profit .
I’m your host , Maximus Profit , and it’s 5 am on Tuesday , December 16th , 2025 , Pacific time .
We’re kicking off this early morning session with the S&P 500 sitting up about 12.71% yeartodate , but frankly , the market feels shaky .

(00:26):
We’ve seen a noticeable pullback from recent alltime highs , signaling a significant period of instability and rotation , especially in the tech sector .
Today , we need to talk about where the smart money is moving as we wait for critical economic data later this week .
Starting with the headlines , the enthusiasm for the AI trade took a hit yesterday .

(00:49):
Key AIlinked stocks are facing selling pressure .
We saw Broadcom , ticker AVGO , drop 5.6% after it flagged potential margin pressures , and Oracle , ORCL , fell 2.7% on softer guidance .
This is reviving real concerns about the costtoprofitability ratio in the AI boom and reminds us that valuations matter .

(01:15):
While Big Tech is wobbling , the smaller players are thriving .
The Russell 2000 , which tracks smallcaps , is significantly outperforming the Nasdaq 100 , up nearly 6% over the last month .
Also , keep an eye on Tesla , TSLA , which remains extremely active , seeing gains of over 3.5% in recent trading sessions despite the broader tech weakness .

(01:42):
Meanwhile , the 10year Treasury yield is firming around 4.16% , reminding us that lingering inflation and debt concerns are keeping a lid on any massive , sustained rally in growth stocks .
Now for the analysis .

The market is definitely climbing the wall of worry right now , but the underlying narrative has shifted dramatically (01:56):
we are rotating .
Leadership is moving away from the megacap tech stocks , the socalled ‘ Magnificent Seven , ’ toward smaller , valueoriented companies .
Why ?
Because the market is pricing in a high probability of a Federal Reserve December rate cut , supported by a softening labor market .

(02:22):
As the Fed eases , smallcaps , Financials , and Industrials become immediate beneficiaries .
We see Financials and Industrials both carrying an Outperform rating for the next six to twelve months , while Information Technology is relegated to Marketperform .
This signals that the easy money in Big Tech may be over for now .

(02:42):
This rotation is crucial .
We have a cluster of critical economic data due out this week — the November Jobs Report , October Retail Sales today , and November CPI on Thursday .
These reports will either confirm the softlanding narrative , which is already benefiting the Cyclical sectors , or introduce more volatility if they surprise to the downside .

The overall thesis right now is clear (03:06):
broadening equity exposure is key .
Given this environment of rotation , here are the recommendations .
First , maintain core exposure but broaden your holdings beyond just the Magnificent Seven .
If you usually rely only on QQQ for tech exposure , consider adding the Vanguard Total Stock Market ETF , VTI .

(03:31):
VTI captures the whole US market , allowing you to capture the outperformance we’re seeing in mid and smallcap stocks right now .
Second , tactically overweight the Cyclical sectors .
We expect Industrials and Financials to outperform .
Use the Industrial Select Sector SPDR Fund , XLI , and the Financial Select Sector SPDR Fund , XLF .

(03:55):
These sectors thrive in a softlanding , stabilizingrate environment .
Third , regarding Big Tech , maintain core exposure in the Invesco QQQ Trust , but be cautious with new singlestock investments like Nvidia , NVDA , given the recent pressure and valuation concerns raised by peers like Broadcom .
Fourth , and finally , get defensive .

(04:18):
With the Fed likely to cut rates soon , fixed income is attractive .
Increase stability and income by allocating funds to broad bond ETFs like the iShares Core U.S.
Aggregate Bond ETF , AGG , or the Vanguard Total Bond Market ETF , BND .
This provides an excellent hedge against any equity volatility that might arise from those upcoming jobs and inflation reports .

(04:45):
That’s all for this early Tuesday morning briefing .
Remember to stay flexible , trade smart , and always keep an eye on that riskreward ratio .
We’ll be back soon with more analysis on Spy Trader .
Happy trading !