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The week’s market narrative unfolded around three major developments: a Federal Reserve that nudged policy in a decisively more accommodative direction, a pair of critical earnings releases from Oracle ORCL and Broadcom AVGO that reignited concerns about the durability of AI-driven revenue, and a broadening rotation across equity sectors as investors worked to interpret shifting monetary signals. Together, these events shaped a volatile but instructive period for markets seeking clarity during the final stretch of the year.

Not a “Hawkish” Cut

The Federal Reserve set the tone with a 25-basis-point rate cut that aligned with consensus expectations. More importantly, Chair Jerome Powell reinforced that the Committee is moving to a meeting-by-meeting framework. Powell stated, “I don’t think a rate hike is anyone’s base case at this point” that effectively removes the threat of renewed tightening for the foreseeable future. Powell stated that the policy rate now sits within a “broad range” of neutral, which signals a shift toward risk management rather than preemptive restraint.

The Summary of Economic Projections reflected a modest but meaningful recalibration of the economic outlook, with real GDP expectations revised higher and inflation estimates moving lower. These adjustments softened the hawkish undertones in the Fed’s commentary, suggesting that policymakers are confident inflation can ease without jeopardizing labor market stability.

Markets responded accordingly. Small-cap stocks surged as the Russell 2000 hit record highs, a reflection of their sensitivity to borrowing costs and domestic economic momentum. Cyclical sectors extended gains after the decision while defensive areas lagged only modestly. Investors also reacted to the Fed’s plan to begin purchasing Treasury bills, a move intended to stabilize reserve balances and improve market functioning, by bidding up precious metals.

While the Committee may not cut again soon, it has signaled comfort with a more accommodative posture. That tonal shift was enough to lift sentiment, even if some dissent within the Committee hints at future debate around the correct pace of easing (Miran wanted a half point cut and Schmid wanted no cuts).

Earnings Strength / Sentiment Weakness

The second major theme emerged from the earnings reports of Oracle and Broadcom, both central to the AI infrastructure trade and to investors’ expectations for hyperscale cloud growth. Oracle was the first to disappoint. Its shares dropped sharply after a revenue miss, soft free cash flow, and a spending outlook that struck investors as overly ambitious relative to near-term growth visibility. Markets reacted not only to the reported numbers but also to what the company declined to address on its conference call.

Management did not offer clarity on OpenAI’s ability to meet its sizable commitments for Oracle’s AI compute capacity, a five-year agreement reportedly worth upward of $300 billion. With OpenAI experiencing rapid but unpredictable scaling across products and partnerships, investors are increasingly uncertain whether the associated consumption will materialize according to Oracle’s expectations. This omission weighed heavily on broader AI-related names and contributed to a pullback across the hardware and software ecosystem. Even though Oracle’s long-term positioning remains intact, the quarter underscored the fragility of AI-driven revenue assumptions, particularly when customers depend on their own accelerating fundraising and commercialization cycles.

Broadcom added to the unease. The company delivered headline results that exceeded expectations and provided upward guidance for the next quarter, yet the stock suffered a double-digit decline. The reaction was driven less by the quarter itself and more by sentiment around future growth. Investors had set a higher bar for the company’s AI semiconductor roadmap and expected more aggressive commentary on demand.

Compounding the pressure were remarks from CEO Hock Tan on the conference call that large technology companies are increasingly exploring in-house chip design. This trend introduces a structural concern. Internal chip development by hyperscalers does not necessarily threaten Broadcom’s customer relationships near term, but it does raise questions about margins and long-term share of wallet. Even with the positive revisions to guidance, the market recalibrated expectations as uncertainty around the next leg of AI-related revenue began to overshadow the company’s strong execution.

Oracle’s and Broadcom’s moves collectively pressured the PHLX Semiconductor Index and contributed to a pronounced rotation out of the AI trade by the end of the week. This reaction underscores a broader dynamic: investors still believe in the secular growth of AI, yet they increasingly differentiate between early-stage revenue enthusiasm and the durability of realized demand.

Market Rotation

The third topic shaping market conditions this week was the emergence of a sector rotation that reflects not only the Fed’s new posture but also investor fatigue within the year’s most crowded trades. The early part of the week saw narrow leadership from technology as mega-cap names supported index-level stability despite broad weakness across other sectors. This dynamic reversed sharply after midweek. As rate-sensitive areas such as financials, industrials, and materials benefited from easing policy expectations, investors pared back exposure to high-beta technology names that had been priced for aggressive follow-through on AI-driven earnings.

The rotation gathered momentum as the week progressed. Strong gains in the industrials and materials sectors reflected not only expectations for improved economic growth but also an uptick in geopolitical and commodity-related developments. Outperformance across health care and staples highlighted a stabilizing backdrop for defensives as some investors sought to balance portfolios after the AI-led volatility. Meanwhile, consumer discretionary stocks showed resilience despite isolated weakness among homebuilders and auto parts retailers.

The move in smaller- and mid-cap equities was particularly noteworthy. Their sustained outperformance across several sessions suggests that investors are redistributing capital into areas that lagged the broader market earlier in the year and that stand to benefit most from a lower cost of capital. This trend may continue if economic data holds steady and if investors gain confidence that the Fed’s next move will eventually be another cut.

Together, these developments form a cohesive picture of a market navigating the transition from restrictive to more flexible monetary policy while simultaneously recalibrating expectations across high-valuation technology sectors. The Fed’s decision removed the near-term threat of renewed tightening, a shift that gave immediate support to cyclicals and smaller-cap names. Oracle and Broadcom’s earnings highlighted the challenges of projecting AI-related revenue with precision and reminded investors that even dominant players can be vulnerable to changes in customer behavior and competitive positioning. Finally, the broadening rotation across sectors suggests that the market is moving beyond the narrow leadership that defined much of the past year, setting the stage for more diversified performance as monetary conditions ease. FactSet’s 2026 earnings growth estimates, which I shared with subscribers in my 10/17 wrap-up, support this thinking.

Chart of the Week

This week’s chart highlights the ongoing consolidation in the S&P 500 across both the daily and hourly timeframes. The daily chart is forming a broadening pattern, while the hourly chart continues to trace out a pennant. Both structures are generally understood as consolidation phases within an established trend, and in this case the dominant trend remains upward.

On the daily chart, the market appears to be developing a classic broadening formation, which typically unfolds in five waves and represents a sideways digestion phase following a sustained advance. Given the strong rally from the April lows, this type of consolidation is a natural progression that helps establish a new base before the next attempt higher. The structure still allows room for one more downward leg into the 6500 area, which would be consistent with a potential wave E. As long as support holds near that zone, the broader pattern remains constructive.

Source: StockCharts, Ryan Puplava, CMT® CTS™ CES™

On the hourly chart, a break below 6800 would likely open the door for a retest of the November lows. Conversely, a decisive break above 6900 would target the 7160 to 7200 range. Even with an upside breakout on the hourly timeframe, the daily chart could still support the possibility of a final pullback toward the lower boundary of the broadening formation. Much will depend on the strength of any move above 6900 and whether on such a move higher if the 14-day RSI remains capped below the 60 level or breakouts out on strength.

Source: StockCharts, Ryan Puplava, CMT® CTS™ CES™

What’s Ahead

In the weeks ahead, I think sentiment and technical charts will shed more light to determine whether this tech rotation deepens or whether investors return to familiar high-growth leaders. For now, the market appears to be digesting the Fed’s shift and reassessing the long-term earnings trajectory of the AI complex, all while searching for a more balanced foundation heading into the new year. Attention will turn to the MasterCard Spending Pulse report the day after Christmas to get a read on the holiday season. The November Black Friday report was good showing sales up 4.1% excluding autos beating last year’s sales increase of 3.4%. Top categories this year around Black Friday’s shopping were apparel, jewelry, and restaurants.

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