Year-End Market Sector Rotation: AI/Tech Pullback Amid Value and Cannabis Strength

This analysis draws from market discussions highlighting significant sector rotation as the year concludes [0]. A key bearish short-term argument centers on AVGO, where the stock faced selling pressure without corresponding negative fundamentals in its recent report, attributed to institutional activity [0]. AI stocks broadly—including NVDA, TSM, and AMD—have encountered profit-taking since Halloween despite stellar earnings and robust guidance, with ORCL being an exception due to disappointing results [0].

Conversely, value sectors (banks, credit cards) and cyclicals (chemicals, metals) have seen substantial gains, reaching all-time highs in some cases (e.g., banks), while healthcare stocks have experienced a rapid run-up [0]. This has led to the perception that tech stocks may now be undervalued relative to these overextended value sectors, prompting consideration of tech-heavy allocations for the upcoming year [0]. Additionally, cannabis stocks have emerged as beneficiaries of the current rotation [0].

Underlying these dynamics are concerns about the speed of AI monetization, particularly from OpenAI and Microsoft, which has cast uncertainty on the multi-year pipeline of AI chips and datacenters [0]. Technical analysis identifies SPY support at $682 and resistance at $690-$691, with tech leaders needing to reclaim resistance levels to avoid mid-long term corrections [0].

1. Fundamental-Price Action Disconnect
   : AI stocks with strong earnings/guidance face profit-taking, indicating short-term sentiment may outweigh long-term fundamentals [0].
2. Value Sector Overextension
   : Traditional value/cyclical sectors have run up significantly, potentially creating a valuation gap with tech stocks [0].
3. Monetization as a Catalyst
   : AI monetization speed worries are a key undercurrent impacting chip demand outlook, despite robust near-term chipmaker results [0].

• Risks
  : Further profit-taking in AI/tech if monetization concerns persist; potential mid-long term corrections for tech leaders if SPY fails to reclaim $690-$691 resistance [0].
• Opportunities
  : Tech stocks may offer relative value compared to overextended sectors, presenting a potential entry point for 2026 allocations; cannabis stocks continue to benefit from sector rotation [0].

Year-end sector rotation drives market dynamics, with AI/tech stocks under pressure amid profit-taking and monetization concerns—despite strong fundamentals. Value/cyclical sectors are overextended, while cannabis stocks gain. SPY’s $682 support and $690-$691 resistance levels are critical for tech’s near-term trajectory. Market participants are evaluating tech’s relative value for 2026 allocations.