Morning Market Overview: AI rotation tests breadth heading into data

Introduction#

U.S. equities enter Monday, December 15, 2025 on the defensive after a tech-led slide into last week’s close and a weekend of mixed overseas signals that left traders focused on macro catalysts and a handful of bellwether earnings. According to Monexa AI, the S&P 500 (^SPX) finished Friday at 6,827.41 (-1.07%), the Dow Jones Industrial Average (^DJI) at 48,458.05 (-0.51%), and the Nasdaq Composite (^IXIC) at 23,195.17 (-1.69%). Volatility firmed, with the CBOE Volatility Index (^VIX) closing at 16.45 (+4.51%).

Overnight, coverage from Reuters described a mixed start to the week for global markets—Asian shares were generally weaker amid soft China data, while European bourses opened cautiously higher after Friday’s U.S. AI-led selloff. The rotation theme is not just anecdote: MoneyShow’s “Chart of the Day” noted the S&P 500 Equal-Weighted Index hit a fresh high last week, signaling broader participation beyond mega-cap tech leadership. Meanwhile, the calendar is crowded: delayed November payrolls are due Tuesday and CPI later in the week, with investors also watching earnings from Micron, FedEx, and Nike. As Reuters and other outlets have highlighted, these data will recalibrate expectations for the Fed’s 2026 path while testing the durability of the year’s rally.

Market Overview#

Yesterday’s Close Recap#

After a choppy session marked by selling in semiconductors and hardware, the major U.S. benchmarks finished lower on Friday. The most acute pressure came from AI-adjacent chipmakers—particularly Broadcom—offset by rotation into staples, select insurers, and a few consumer discretionary leaders. Even with the drop, index levels remain technically constructive relative to intermediate trendlines: per Monexa AI, ^SPX closed above its 50-day average (6,759.61) and well ahead of its 200-day (6,213.17). ^IXIC also ended above its 50-day (23,107.26). The ^VIX rose, but remains below its 50- and 200-day averages (18.46 and 19.63), keeping volatility contained by historical standards.

The session’s character fits the recent pattern of “dispersion-with-defensiveness.” Monexa AI’s heatmap shows Technology as the biggest drag, with semiconductors and hardware under stress, while Consumer Defensive outperformed and Communication Services was broadly flat. Industrials and Energy also weighed on breadth, though specific subsectors diverged sharply.

Overnight Developments#

Markets came into Monday trying to stabilize from Friday’s AI drawdown. Reuters flagged mixed risk appetite across Asia and early gains in Europe. U.S. stock futures were little changed Sunday evening after a volatile week, per multiple weekend roundups, with analysts emphasizing the rotation out of AI leaders and the data-heavy slate ahead. In addition, company-specific headlines may shape early flows: Broadcom’s post-earnings margin debate, Lululemon’s momentum after a beat and buyback expansion, and a notable bank upgrade of Citigroup could all influence sector tone at the open. Broader sentiment remains sensitive to China data—weekend reports referenced weaker readings—though this is secondary to the U.S. macro and earnings calendar to start the week.

Macro Analysis#

Economic Indicators to Watch#

The week is dense with market-moving macro. As several weekend previews summarized and Reuters reiterated, Tuesday brings the delayed November nonfarm payrolls report, followed later in the week by the Consumer Price Index. Traders will be parsing payrolls for wage growth momentum and participation, and CPI for confirmation that disinflation remains intact. The stakes are high: upside surprises risk re-tightening financial conditions; benign prints could validate the recent rally in rate-sensitive equities and cyclicals.

The Fed’s tone will remain crucial. Chair Jerome Powell recently reiterated a desire to hand off an economy in “really good shape” when his term ends in 2026, emphasizing the dual objective of 2% inflation and a strong labor market. Policy-sensitive sectors—financials, housing-adjacent cyclicals, and parts of consumer discretionary—will trade against any shift in perceived 2026 rate-cut odds that this week’s data imply. Equity volatility is already perking up at the margins, with ^VIX and ^RVX both higher on Friday, and typically accelerates into major data if expectations are uncertain.

Global/Geopolitical Factors#

Overnight reports highlighted weak Chinese data weighing on regional risk sentiment, while Europe opened with a modest bid as investors looked past Friday’s U.S. tech selloff. Separately, headlines continue to remark on AI export policy developments and shifting global technology supply chains, raising medium-term questions for semiconductor and data-center capital spending. Reuters cautioned recently that stress among certain data-center tenants could act as a speed governor on the AI capex cycle, even as long-run demand for compute remains robust. These crosscurrents matter for semiconductors, cloud platforms, and power/utility infrastructure as AI deployment scales.

Sector Analysis#

Sector Performance Table#

According to Monexa AI, sector performance at Friday’s close reflected a pronounced rotation out of technology and into defensives, with Utilities and Energy notably weak and Consumer Defensive outperforming. Industrials and Financial Services were also lower, while Basic Materials eked out gains.

The day’s leadership tells a consistent story. In Technology, the selloff was concentrated in semiconductors and hardware—Broadcom AVGO slumped on margin concerns, while names like AMD, NVDA, and equipment suppliers such as LRCX traded lower in sympathy, per Monexa AI’s heatmap. Platform software and mega-cap ecosystems were relatively resilient, with MSFT modestly lower and AAPL essentially flat to slightly higher.

Industrials showcased the market’s dispersion: heavy-equipment and electrification proxies like CAT and Eaton were under pressure, while aerospace and select transports outperformed—General Electric rose and rails held firm. Energy weakness was broad-based, compounded by notable declines in renewables like First Solar and pain across service proxies such as SLB. Utilities were the laggard, reflecting a mix of idiosyncratic drawdowns in merchant-exposed names and modest gains in regulated incumbents; the group’s divergence underscores how rate sensitivity and regulatory exposure can produce very different outcomes within a single sector.

Consumer Defensive’s bid was textbook “quality carry”—beverages, tobacco, and big-box grocers closed higher, led by Coca-Cola, Philip Morris, and Walmart. Consumer Cyclical was mixed-to-positive: LULU surged on earnings and buyback news, CMG rallied, while AMZN lagged. Communication Services was near-flat in aggregate, with ad-driven platforms like META and Alphabet (GOOGL/GOOG modestly lower, offset by strength in telcos and select streaming names.

Company-Specific Insights#

Earnings and Key Movers#

The most consequential single-stock driver Friday was Broadcom AVGO. Shares dropped roughly 10% intra-day after earnings as investors focused on the company’s guidance for lower gross margins on AI-related revenue versus its non-AI businesses, and on the timing of certain customer ramps. Management also disclosed an approximately $73 billion AI chip backlog expected to ship over the next 18 months. Reporting from Reuters, the Financial Times, and the Wall Street Journal emphasized the margin mix issue as the core overhang despite otherwise robust AI demand. The read-through weighed on peers: NVDA, AMD, and capital equipment suppliers like LRCX all traded lower, reinforcing the idea that the market is recalibrating how much profit each incremental AI dollar will generate near-term.

In Consumer, lululemon LULU rose more than 9% after posting a revenue beat and expanding its buyback program. Management flagged strong international growth led by China, offsetting softer Americas trends, according to post-earnings coverage compiled by Monexa AI. The stock’s strength provides a counterpoint to concerns about U.S. discretionary fatigue and demonstrates how brand momentum and geographic mix can insulate results into year-end. RH RH also gained after revenue topped estimates despite an EPS miss, while the company reaffirmed free cash flow guidance. Costco COST delivered upside on EPS and revenue, with membership fees up +14% year over year; the shares dipped more than 1% intra-day on rotation rather than fundamentals, per Monexa AI’s recap.

In Financials, JPMorgan upgraded Citigroup C to Overweight with a higher price target, citing improving profitability, efficiency gains, and progress on regulatory matters. The call argues for a re-rating as returns on tangible common equity track higher. Conversely, in Energy, Mizuho downgraded Valero VLO on concerns that delayed global capacity additions into 1H26 could loosen refining balances and pressure crack spreads, noting the stock’s strong year-to-date run. North of the border, Suncor SU received a price target bump and reiterated a 2026 plan emphasizing shareholder returns, including a 10% increase to buybacks.

Looking ahead, this week’s earnings from Micron MU, FedEx FDX, and Nike NKE sit at the nexus of macro and sector narratives. For Micron, investors will look for confirmation that high-bandwidth memory and DRAM pricing remain firm, and that AI data-center demand is still absorbing capacity—a theme supported by 2025 sell-out conditions and premium memory pricing discussed in recent Reuters coverage. For FedEx, parcel mix, pricing discipline, and updates on its DRIVE cost program will inform the “transport strength equals breadth” thesis; upbeat signals would validate the rotation toward cyclicals. For Nike, focus will be on China momentum, direct-to-consumer execution, and inventory normalization, which together could sway discretionary sentiment into year-end.

Extended Analysis#

The heart of the current rotation is the “AI margin puzzle.” Investors aren’t questioning demand for compute, networking, or memory; instead, they’re debating how profitable the near-term revenue surge will be for suppliers. Broadcom’s commentary that AI revenues carry lower gross margins versus non-AI products sharpened this concern. The company guided to a sequential gross margin dip of roughly 100 basis points amid a higher AI mix, per Reuters. That nuance—strong top-line but mixed margins—was enough to catalyze de-risking across semis that had run hard into year-end. The knock-on is straightforward: if the market reprices the earnings power of the AI complex a turn or two lower, leadership broadens by necessity.

Breadth is, indeed, improving. As noted by MoneyShow’s chart feature and reflected in Monexa AI’s sector breadth, the S&P 500 Equal-Weighted Index making a new high last week indicates participation outside the handful of mega-cap platforms. Transportation shares turning up, staples catching a bid, and insurance outperforming all fit a regime where investors are redistributing capital from a concentrated AI trade into a wider set of cash-flowing businesses. Reuters flow data corroborated recent demand for industrials, healthcare, and metals/mining funds in the week ended December 10—consistent with the idea that value/defensive pockets are absorbing inflows.

There are, however, limits to the “defensives-only” lens. Consumer Cyclical showed notable green shoots: TSLA rallied, CMG advanced, and MCD participated despite broader tech weakness. The market appears willing to own select growth at a reasonable price where unit economics are robust and execution is visible. That same nuance applies within Communication Services: advertising-sensitive platforms like META and Alphabet (GOOGL/GOOG eased, but streaming and telco pockets firmed. In Utilities, the split between idiosyncratic decliners and steady regulated names also argues for a stock-picker’s market, not a blanket sector call.

For semis, the near-term question is how far margin compression extends and for how long. The structural case for multi-year AI infrastructure investment remains intact, supported by backlog disclosures and persistent demand for premium memory. Yet the supply side matters: if HBM supply remains tight as packaging and wafer capacity scale, memory suppliers like MU could defend pricing and margins better than generalist chip peers. Conversely, if data-center tenant stress slows down procurement—a risk flagged by Reuters Breakingviews—momentum could ebb in phases, introducing volatility into quarterly prints and orders.

From a portfolio-construction standpoint, Friday’s tape and the weekend’s headlines argue for balance. Indexes remain above key moving averages, breadth is improving, and cyclical confirmations from transports could extend the rally. But the market is treating AI hardware cash flows as less “pure margin” than previously modeled. That mixture supports a barbell: maintain exposure to high-quality platforms with resilient cash generation, pair with defensives and select cyclicals benefiting from breadth, and use tactical hedges to manage event risk around this week’s data.

Conclusion#

Morning Recap and Outlook#

Heading into the open, the setup is straightforward. The previous session closed with the S&P 500 at 6,827.41 (-1.07%), the Dow at 48,458.05 (-0.51%), and the Nasdaq at 23,195.17 (-1.69%), per Monexa AI, with ^VIX at 16.45 (+4.51%). Overnight markets were mixed—Asia soft on China headlines, Europe incrementally firmer—while U.S. futures were little changed according to Reuters. The core narrative is rotation: technology, especially AI-adjacent semis and hardware, remains the pressure point on margins and valuations, while defensives and select consumer names find sponsorship. Breadth is better than the headline drop implies, with equal-weight indices advancing and transports perking up.

What to watch today: price discovery in semis after Friday’s reset; follow-through in staples and insurers; and any early tells from transports ahead of FedEx’s report. Into the macro prints, expect sensitivity to rates-proxy trades and an elevated focus on wage growth and services inflation. Company-specific catalysts include continued digestion of AVGO guidance, positioning into MU, and consumer read-throughs from LULU, COST, and NKE.

For investors and analysts, the trade-off is tactical: use breadth to diversify away from AI concentration without abandoning secular winners; respect the earnings and data calendar by trimming tail risk; and be ready to add on overshoots where the fundamentals—cash conversion, pricing power, balance-sheet strength—remain intact.

Key Takeaways#

Friday’s declines were led by AI semis and hardware, with the S&P 500 and Nasdaq down -1.07% and -1.69%, respectively, while volatility ticked higher but stayed below medium-term averages. Breadth is improving—the S&P 500 Equal-Weighted Index hit a new high last week—and defensives are increasingly carrying incremental inflows. The week’s macro releases—payrolls and CPI—are the dominant catalysts, and earnings from MU, FDX, and NKE will shape sector sentiment. The balance of risks favors a barbell of quality platforms, defensives, and select cyclicals, with hedges into data and earnings to navigate event risk.