Sharp cross-currents buffeted U.S. stocks beneath a placid surface Thursday, as last year's technology winners faced selling pressure while investors rotated into defensive sectors, energy producers, and small-cap stocks.

The information technology sector emerged as the worst performer among the S&P 500's 11 sectors, falling more than 1%. AI darling Nvidia ended the day down more than 2%, while Apple notched its seventh consecutive session of losses. Oracle pulled back nearly 2%, and the Philadelphia Semiconductor Index declined roughly 2%.

A Tale of Two Markets

Despite the tech weakness, the broader market showed resilience. The Dow Jones Industrial Average rose 270 points, or 0.55%, to close at 49,266—buoyed by gains in defense stocks, automakers, and consumer companies. The S&P 500 eked out a fractional gain of 0.01% to finish at 6,921, while the tech-heavy Nasdaq Composite dropped 0.44% to 23,480.

The divergence highlights an evolving investment landscape as 2026 unfolds:

  • Small caps surge: The Russell 2000 index of smaller companies continued its January rally
  • Value rotation: Investors moved capital from growth stocks to more economically-sensitive sectors
  • Defense rally: Military contractors soared on Trump's $1.5 trillion budget proposal
  • Auto gains: Ford and GM reached 52-week highs on tax policy news

Why Tech Is Pulling Back

The technology sector's weakness reflects several converging factors:

  • Valuation concerns: After massive gains in 2025, many tech stocks trade at elevated multiples
  • Profit-taking: Investors are locking in gains from last year's AI-fueled rally
  • Rate sensitivity: Uncertainty about Fed policy weighs on long-duration growth stocks
  • Rotation dynamics: Money managers are rebalancing portfolios to start the new year

"Sharp cross-currents buffeted US stocks beneath a placid surface Thursday, as last year's technology winners sold off and investors dove into energy producers, consumer companies, and small caps."

— Market commentary

Apple's Losing Streak

Apple's seven-day losing streak has attracted particular attention, especially following news that Alphabet overtook the iPhone maker in market capitalization for the first time since 2019. The back-to-back setbacks have raised questions about Apple's competitive position in an AI-dominated landscape.

Raymond James this week downgraded Apple, warning that meaningful gains may prove elusive in 2026 absent a compelling AI strategy. The delayed launch of Apple's next-generation Siri assistant has left investors wondering when—or whether—the company will mount a credible response to competitors' AI advances.

Nvidia's Pause

Nvidia's 2% decline Thursday represents a modest pullback for a stock that gained more than 170% in 2025. The chipmaker remains the cornerstone of the AI investment thesis, with its graphics processors powering the training and deployment of large language models across the technology industry.

Despite Thursday's weakness, Wall Street remains overwhelmingly bullish on Nvidia's prospects. Analysts project the company will continue to benefit from insatiable demand for AI computing infrastructure, with major cloud providers and enterprises racing to build out their capabilities.

What's Driving the Rotation

The rotation from technology into other sectors reflects several market dynamics:

  • January effect: Historically, smaller companies tend to outperform in January as investors deploy new capital
  • Policy catalysts: Trump administration initiatives are creating winners outside the tech sector
  • Valuation reset: After a narrow market in 2025, investors seek opportunities in less-crowded trades
  • Economic optimism: Strength in manufacturing and services data supports cyclical stocks

Looking Ahead

The Friday jobs report looms as the next major test for markets. A strong employment reading could reinforce the case for economic resilience but might also reduce expectations for Federal Reserve rate cuts. Conversely, a weak report could reignite concerns about growth while boosting rate-cut hopes.

For technology investors, Thursday's session serves as a reminder that even the strongest bull markets experience periodic consolidation. Whether the current rotation represents a healthy breather or the beginning of a more significant correction will depend on upcoming earnings reports and economic data.

Q4 earnings for the "Magnificent Seven" group of companies—which includes Nvidia, Apple, and Tesla—are expected to rise 17.3% from the same period last year. Those results, beginning later this month, will provide crucial evidence of whether AI investments are translating into sustainable profit growth.