US equities closed mixed on Thursday as investors took profits in high-flying technology shares, sending the Nasdaq Composite down 1.4 percent while the Dow Jones Industrial Average edged into positive territory.
The S&P 500 finished nearly flat, slipping less than 0.1 percent, as losses in megacap technology stocks were offset by gains in traditionally defensive sectors including consumer staples and utilities. The divergence marked the sharpest one-day performance gap between the Nasdaq and the Dow in three weeks.
Shares of large-cap technology companies that have rallied sharply on artificial intelligence optimism bore the brunt of Thursday's selling. Semiconductor manufacturers and cloud infrastructure providers led declines, with the technology sector falling 1.8 percent as a group. Communication services stocks, heavily weighted toward internet platforms, dropped 1.3 percent.
The pullback followed a sustained run-up in AI-related equities over the past month. Investors cited profit-taking as the primary driver, rather than any fundamental shift in the outlook for artificial intelligence adoption.
"We're seeing classic rotation behavior," said a portfolio manager at a US pension fund. "The momentum trade got crowded, and now some of that capital is moving into areas that have lagged—financials, industrials, energy. It's not a bearish signal for tech necessarily, but a healthy digestion."
Defensives Outperform
Utilities rose 1.1 percent, marking the sector's best single-day performance in two months. Consumer staples added 0.8 percent, while healthcare gained 0.5 percent. Energy stocks climbed 0.9 percent as crude oil prices stabilized following recent volatility.
Financials posted modest gains of 0.3 percent, supported by expectations that interest rates will remain elevated longer than previously anticipated. Regional banks outperformed their larger peers.
Trading volume on major exchanges ran roughly in line with the 30-day average, suggesting the rotation was orderly rather than panic-driven. The CBOE Volatility Index, a measure of expected market turbulence, ticked up 2 points but remained well below levels associated with stress.
What's Ahead
Market participants will turn their attention to Friday's release of the personal consumption expenditures price index, the Federal Reserve's preferred inflation gauge. Economists surveyed by wire services expect the core measure, which excludes food and energy, to show a modest uptick on a monthly basis.
"Tomorrow's PCE print matters," the portfolio manager said. "If it comes in hotter than expected, you could see this rotation accelerate. If it's benign, tech might stabilize and we get back to the AI narrative. Right now, the market is just waiting for the next data point."
Treasury yields were little changed, with the 10-year note holding near 4.25 percent. The dollar index edged higher against a basket of major currencies.
Analysts noted that the recent shift into value-oriented stocks does not yet constitute a sustained trend, but rather reflects short-term positioning ahead of key economic data. Whether the rotation continues will depend largely on inflation readings and any signals from Federal Reserve officials in coming weeks.
