Capital Rotates From Big Tech to Small Caps in Year-End Shift
New York, Monday, 15 December 2025.
As 2025 concludes, capital is fleeing Big Tech for small caps, driving the Russell 2000’s 2.3% December surge. Sparked by Oracle’s slump, investors are questioning AI profitability and favoring broader market exposure.
Divergence in Market Breadth
Wall Street is currently navigating a distinct decoupling of asset classes as investors rebalance portfolios ahead of the new year. As of the morning of Monday, December 15, 2025, the market is witnessing a move away from mega-cap technology stocks toward broader equities. While the technology-heavy Nasdaq is down 0.9% month-to-date, the small-cap Russell 2000 index has climbed 2.3% over the same period [5]. This rotation was evident in early trading on Monday, with the Russell 2000 adding another 0.3% while the Nasdaq dipped 0.1% [5]. This shift represents a widening of market breadth rather than a total exit from equities, as capital flows into cyclical sectors and smaller companies that have historically lagged behind the artificial intelligence boom [1][2].
The AI Profitability Reality Check
The catalyst for this reallocation appears to be a reassessment of the capital intensity and immediate profitability of the artificial intelligence sector. Oracle Corporation became a focal point of this anxiety during the trading week ending December 12, with its stock plummeting 12.6% following an earnings report that highlighted aggressive capital spending plans [3]. This selloff dragged down other semiconductor and software giants; Broadcom shares fell 8.4% over the same week, while the Nasdaq Composite slid 1.69% on Friday alone [3]. Jeremy Siegel, chief economist at WisdomTree, suggests this rotation has “more legs” than previous market fluctuations, noting that recent events have cast doubt on how quickly the massive AI buildout will translate into profitability [2]. Investors are increasingly scrutinizing whether companies growing their spending faster than their income are destined to overexpand, a narrative that is currently weighing heavily on sentiment surrounding hyperscalers [2].
Interest Rate Sensitivity and Sector Flows
Beyond the skepticism surrounding Big Tech valuations, macroeconomic conditions are favoring the so-called “Main Street trade”—a basket of mid- and small-cap stocks—over the “Wall Street trade” of mega-cap names [2]. Bank of America Securities notes that markets are positioning for a scenario where smaller companies benefit from falling short-term interest rates [2]. Consequently, capital is finding a home in sectors such as materials, industrials, financials, and healthcare [2]. For instance, the Health Care Select Sector SPDR Fund (XLV) rose approximately 1.4% during the week ending December 14, defying the broader tech-led downturn [6]. This rotation is further supported by the bond market, where the 10-year Treasury note yield traded at 4.16% on December 15, providing a relatively stable backdrop for valuation-sensitive sectors [4].
Upcoming Economic Indicators
Looking ahead, the durability of this rotation will likely be tested by a series of critical economic data releases scheduled for this week. Investors are awaiting the November U.S. nonfarm payrolls report, due on Tuesday, December 16, with analysts estimating the addition of 30,000 jobs and an unemployment rate of 4.4% [4]. Additionally, earnings reports from Micron on December 17, followed by Nike and FedEx on December 18, will provide further clarity on consumer health and corporate spending [4]. With the Federal Reserve’s rate-cutting cycle still active and central banks in Europe and Japan adjusting their own policies, the interplay between monetary policy and corporate earnings remains the primary driver for asset allocation as 2025 draws to a close [4][5].