The Great Tech Rotation

The spark came in mid-July with cooler-than-expected CPI data. Headline inflation dipped, core numbers softened, and suddenly a September Fed cut went from "maybe" to "almost certain."

Small caps and rate-sensitive sectors have been crushed under high interest rates for two years. Lower rates mean lower borrowing costs, better margins, and more room to invest.

The Mag 7 had grown so dominant that they accounted for over 30% of the S&P 500. Passive index funds and ETFs had to keep buying them just to stay in line with weightings.

When the herd finally paused, the unwind was sharp. Portfolio managers rebalanced into laggards, and momentum traders piled into the new leaders.

It's textbook mean reversion: the stuff that worked best stops working for a little while.

Rotations like this feel seismic in the moment, but they often prove short-lived when the underlying growth drivers remain intact.

The mega caps didn't suddenly become bad businesses. AI spending is still accelerating. NVIDIA's order backlog stretches into next year. Apple's services moat keeps growing.

Small caps are cheaper for a reason: higher leverage, weaker balance sheets, and more exposure to the economic cycle.

This rotation is a healthy exhale after an epic tech-led rally. It reduces concentration risk and gives mega-cap investors a chance to buy quality growth at slightly better prices.