Investors are closing out 2025 by dumping the biggest winners and buying up everything they’ve been ignoring. Tech giants that powered this year’s 17% jump in the S&P 500 are now taking a back seat, while small-caps, mid-caps, transport stocks, and other lagging corners of the market are suddenly outperforming.
What’s normally a clean-up season for portfolios has turned into a full-scale rotation into beaten-up stocks.
Since November 20, when US equities bottomed near-term, the Russell 2000 Index has jumped 9.4%, punching through a fresh all-time high on Thursday.
Micro-cap names have surged 12%, and a key mix of airlines, shipping, and trucking stocks has risen 11%, gaining every single trading day in that span. The S&P 500, weighed down by slowing tech names, moved up 5.1% by comparison.
The reason behind the pivot is clear. The AI trade that sent tech stocks soaring earlier this year is losing steam. Nvidia and Microsoft, which had driven most of the gains, are no longer climbing.
Traders are now betting that the US economy will gain speed in early 2026, so they’re shifting into cheaper, value stock names tied to real economic activity.
Strategas and BofA Advise Clients to Focus on Value Plays
Jason De Sena Trennert, co-founder of Strategas Asset Management, has been advising clients to buy the equal-weighted S&P 500. This strategy spreads weight more evenly across all 500 stocks, rather than concentrating it in mega-caps.
Trennert anticipates that a White House under President Donald Trump will advance a tax package designed to boost consumer demand and capital investment. He also highlighted the upcoming World Cup as a potential catalyst for broader economic and corporate growth in the coming year.
This perspective is shared by Michael Hartnett, chief investment strategist at Bank of America. Hartnett recommended that clients favor undervalued mid-cap stocks with significant exposure to the economic cycle.
Hartnett believes the Trump administration is likely to implement policies aimed at controlling inflation and unemployment, which would benefit sectors such as retail, real estate investment trusts, homebuilders, and transportation firms. He emphasized that future upside potential lies outside of technology stocks.
This shift was evident in November's performance. The equal-weight S&P 500 increased by 1.7%, outperforming the cap-weighted version's 0.3% gain.
According to BofA's latest analysis, the top 50 stocks in the S&P 500 declined by 0.6%, while the remaining 450 stocks saw a rise of 1.3%. This marked a significant departure from the narrow leadership that characterized most of the year.
JPMorgan Warns of Potential Profit-Taking After Fed Rate Cut
Not all firms are convinced that this rotation will continue uninterrupted through December. A team of strategists at JPMorgan, led by Mislav Matejka, has flagged the possibility of traders taking profits shortly after the Federal Reserve's anticipated rate cut this Wednesday.
Currently, there is a 92% probability priced into the market that the Fed will lower borrowing costs, following a series of positive policy signals in recent weeks.
Matejka noted in a research report that "Investors might be tempted to lock in the gains into year end, rather than be adding directional exposure. The cut is now fully in the price, and equities are back to highs."
Despite this short-term caution, the JPMorgan team remains optimistic about the medium-term outlook. They suggest that a dovish Federal Reserve, low oil prices, moderating wage growth, and easing tariff tensions will provide ample room for the central bank to act without stoking inflation. This environment, they believe, will support further equity gains, though perhaps not immediately this month.
Beneath the broader market trends, the healthcare sector emerged as the top performer in November with a 9.1% gain. In contrast, information technology was the weakest sector, falling 4.4%. Communication services and materials also experienced gains. Value stocks outperformed growth and all other factors last month, reversing a prolonged period of underperformance.
Momentum stocks, which were significant gainers earlier in the year, experienced a sharp decline. Savita Subramanian, head of equity and quantitative strategy at BofA, suggested this could indicate a "change in leadership, as established outperformers give way to former laggards."
The movement into less favored stocks continues to gain momentum. Scott Rubner of Citadel Securities informed clients on Friday that these rotations remain active, with the Russell 2000 outperforming the S&P 500 and Nasdaq 100 on multiple days. This trend, he stated, signals that traders are moving beyond solely focusing on Big Tech.
This rotation gained traction after disappointing AI-related earnings reports from major technology firms last month, which raised concerns about future AI spending.
This development provided traders with a rationale to step back from high-priced growth stocks and reallocate capital to names that had lagged throughout the year. These previously overlooked stocks are now contributing to the market's upward movement.