Investors Rotate Out of Tech Giants into Cyclical Stocks as Market Breadth Expands

Capital is shifting from mega-cap technology stocks to cyclical sectors as market leadership broadens beyond the "Magnificent Seven." Since early November, the equal-weight S&P 500 has gained 6%, outperforming the cap-weighted index's 1.6% rise, with materials, healthcare, and consumer sectors leading. The Invesco S&P 500 Equal Weight ETF (RSP) has attracted $4.8 billion year-to-date, ranking third among U.S. equity ETFs. Small-caps have surged, with the Russell 2000 up over 7% during this period. Deutsche Bank data shows record inflows into materials ($6.5 billion), with industrials, financials, and energy also gaining, while tech funds experienced outflows of $1.4 billion in the latest week. Analysts from Jefferies and Morgan Stanley cite optimism about U.S. economic resilience and broadening profit growth as drivers, expecting sustained rotation into cyclical and small-cap stocks.