(Bloomberg) — For stock traders, December is normally a time for what’s known as window-dressing. Load up on your winners and ditch your losers to lock in a solid year.
The opposite is happening this time.
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Investors are rotating out of the technology behemoths that drove virtually all of this year’s 17% advance in the S&P 500 Index and snapping up shares of risky small companies and old-economy transportation names that have lagged behind all year.
Since US stocks hit their near-term low on Nov. 20, the small-cap Russell 2000 Index has gained 9.4%, reaching an all-time high on Thursday. Micro-caps have added 12%, while an economically-sensitive cohort of trucking, shipping, and airline stocks has advanced 11%, rising in every session. The S&P 500 Index has gained 5.1% during that time.
The rotation comes as investors increasingly question the lift-all-tech-boats nature of the artificial intelligence trade, with heavyweights like Nvidia Corp. and Microsoft Corp. seeing rallies stall out. Optimism that the US economy is set to accelerate in the first half of 2026 has seen traders more willing to pile into value stocks at the cost of tech.
Strategas Asset Management LLC advises clients to overweight a version of the S&P 500 that strips out market-cap bias relative to the cap-weighted version, with co-founder Jason De Sena Trennert citing expectations that President Donald Trump’s tax bill will lift consumer and capital spending. He also pointed to the World Cup’s potential to drive and broaden economic and earnings growth next year.
Trennert isn’t alone in that view. Bank of America Corp. chief investment strategist Michael Hartnett on Friday advised clients to buy “inexpensive” mid-caps into 2026 with the White House likely to intervene to keep a lid on inflation and the unemployment rate. His team also sees the best relative upside in sectors linked to the economic cycle, such as homebuilders, retailers, REITs and transportation stocks.
November saw changing leadership on full display, with the S&P 500 Equal Weighted Index gaining 1.7% as the standard version rose just 0.3%. Meanwhile, the largest 50 companies in the S&P 500 slumped 0.6% for the month while the remaining 450 constituents in the gauge advanced 1.3%, according to BofA data.
