The Dow Jones Industrial Average keeps hitting record highs. The Nasdaq Composite keeps falling. These two divergent trends encapsulate what strategists are calling the "Great Rotation"—a significant shift in investor preferences from growth and technology stocks toward value-oriented sectors.

The numbers from November and early December 2025 tell the story clearly: the Morningstar US Value Index rose 3.06% in November while the US Growth Index fell 2.37%. The Russell 1000 Value gained 2.7% compared to a 1.8% decline for growth. And the Dow's surge to new records contrasts sharply with the Nasdaq's struggles.

What's Driving the Rotation

Several interconnected factors are pushing capital from growth to value:

AI Bubble Anxiety

The sharp selloffs in Oracle and Broadcom this week crystallized fears that have been building for months. Investors are questioning whether AI infrastructure spending will generate adequate returns—or whether companies are simply throwing money at a technology whose monetization remains uncertain.

"Investors are definitely skittish as it relates to AI," said Jed Ellerbroek, portfolio manager at Argent Capital Management. "Not outright pessimistic, but just kind of cautious and nervous and hesitant."

Interest Rate Reality

The Fed's signal that rates will remain elevated through 2026 has shifted the calculus for growth stock valuations. When discount rates are high, future earnings are worth less in present value terms. This mathematically favors companies with strong current cash flows over those promising profits years in the future.

Valuation Extremes

The concentration of market gains in a handful of mega-cap tech stocks has left value sectors trading at historically cheap valuations. At some point, the gap becomes too extreme to ignore.

Where the Money Is Going

The rotation isn't random—capital is flowing to specific sectors that offer the combination of reasonable valuations, strong cash flows, and economic sensitivity:

  • Financials: Visa, Mastercard, and major banks are benefiting from higher rates and strong consumer spending
  • Healthcare: UnitedHealth Group and other managed care companies offer defensive growth
  • Industrials: GE Aerospace and infrastructure-related companies are riding the manufacturing renaissance
  • Energy: Oil and gas producers offer value characteristics with commodity upside
  • Consumer staples: Defensive names with consistent dividends attract risk-averse capital

The Tech Exodus

On the other side of the rotation, AI-exposed stocks are seeing significant outflows:

  • AMD: Down amid concerns about China export restrictions
  • Palantir: Volatile despite strong fundamentals
  • Micron: Memory chip exposure adds cyclical risk
  • Oracle: AI spending concerns dominate
  • Broadcom: Margin compression worries

Even Nvidia, the poster child of the AI revolution, has experienced selling pressure as investors question whether any company can justify its current valuation.

Is This the Start of a New Trend?

The million-dollar question: is this rotation a temporary correction or the beginning of a multi-year shift in market leadership?

History suggests caution about declaring permanent regime changes. Growth has outperformed value for most of the past 15 years, with only brief interruptions. The mega-cap tech companies have enormous competitive moats, strong balance sheets, and genuine earnings power.

However, the current rotation does have characteristics that suggest durability:

  • Valuation support: Value stocks are genuinely cheap, not just relatively cheap
  • Fundamental earnings: Value sector earnings are growing, not just benefiting from multiple expansion
  • Policy backdrop: Elevated rates favor value; this could persist for years
  • AI reality check: The transition from AI hype to AI fundamentals favors companies with proven business models

Portfolio Implications

For investors considering how to position:

Don't Abandon Tech Entirely

The best technology companies will continue to generate strong returns over time. Selling everything to chase the value rotation could prove costly if sentiment shifts.

Rebalance Thoughtfully

If your portfolio has become heavily weighted toward growth after years of outperformance, the rotation may be an opportunity to rebalance toward more diversified exposure.

Consider Quality Value

Not all value stocks are created equal. Focus on companies with strong balance sheets, consistent dividends, and durable competitive positions rather than cheap stocks that are cheap for good reasons.

Extend Time Horizon

Rotations can take years to play out fully. Don't expect value to outperform every month—but over a multi-year period, the setup looks attractive.

The Bottom Line

The Great Rotation reflects a market that is normalizing after years of exceptional growth stock performance. Whether it continues depends on interest rates, AI monetization, and economic conditions. But for the first time in years, value investors have reason for optimism.