Markets woke up with two moods on Thursday: a blue‑chip bounce and a tech chill. The Dow Jones Industrial Average climbed 270.03 points (0.55%) to finish at 49,266.11, even as the Nasdaq Composite slipped 0.44% to 23,480.02. The S&P 500 barely budged, ending at 6,921.46.
Rotation, politics and a pinch of geopolitics
Investors rotated out of the high-flying tech names that powered last year’s rally and into sectors seen as more sensitive to policy shifts — most notably defense. Nvidia, the poster child of the AI boom, dropped more than 2% on the day and Apple extended a rough patch with its seventh straight decline. Information technology was the laggard among S&P sectors, shedding more than 1%.
What moved the needle? Two big drivers converged. First, President Donald Trump floated a dramatic increase in defense spending — a call for a $1.5 trillion military budget in 2027, roughly 50% above the figure Congress approved for 2026. Defense contractors and related ETFs ripped higher: Lockheed Martin, Northrop Grumman and others popped, and the iShares US Aerospace & Defense ETF hit fresh intraday highs.
Second, markets were parsing labor data and waiting for Friday’s headline jobs report. Signs that layoffs are easing — December job‑cut announcements fell to 35,553, the lowest in 17 months, per Challenger, Gray & Christmas — sat alongside mixed hiring signals. Initial jobless claims rose modestly to 208,000, keeping the Fed’s near‑term policy calculus very much in play.
The Nvidia variable: AI optimism meets real‑world friction
Even while traders pulled money out of megacaps, the AI story remains central. Nvidia shares weakened after profit‑taking, but the bigger narrative is still about how AI chips, software and physical AI (robots and data centers) will reshape demand for everything from memory to defense hardware.
China’s willingness to import some of Nvidia’s H200 chips — reports say approvals could arrive soon — is another wild card. Nvidia appears to be treating those sales cautiously: Bloomberg and Reuters note the company is insisting on full up‑front payment from Chinese buyers, a sign of the uncertainty around cross‑border commerce for advanced AI silicon.
That dynamic — surging demand for AI infrastructure alongside geopolitical frictions over where chips can be sold — is reshaping winners and losers. Alphabet’s AI strides have helped it overtake Apple in market cap recently, a reminder that the AI arms race isn’t only about chipmakers. For context on Google’s deep‑search ambitions, see how the company is folding Gemini into workspace products in ways that matter to investors and users alike (Gemini’s Deep Research may soon search Gmail and Drive).
Meanwhile, the broader race among cloud and software giants to own AI tooling includes fresh offerings from other big players — it’s worth watching companies like Microsoft as they expand their in‑house models and imaging tools (Microsoft unveils MAI‑Image‑1, its first in‑house text‑to‑image model).
Oil, Venezuela and market ripple effects
Energy also played a role. Oil rebounded after a midweek slide tied to comments about Venezuela turning over millions of barrels to the U.S. Futures for Brent and WTI both rose more than 4% on the session. That bounce helped energy names and lifted some industrials, even as questions swirl over how long U.S. oversight of Venezuelan oil sales might last.
Big oil companies say they’d need legal and financial guarantees before committing capital to Venezuela — a reminder that policy proclamations don’t instantly translate into investment.
Small caps, value and a few standouts
The Russell 2000 kept its hot start to the year and notched a new high, led by a handful of names that surged double digits. Value outperformed growth on the day, a classic sign of rotation as traders hunt for better earnings leverage outside of megacap tech.
Defensive winners and cyclical recovery stories showed up across the tape: aerospace and defense names rallied hard, some consumer‑facing autos climbed after a Treasury tax deduction tweak, and a handful of smaller growth names — robotics and robotics‑adjacent firms — stepped into the spotlight after CES demos and fresh deployments.
Why traders should care now
This isn’t a simple “tech bubble popped” story. It’s a market re‑shuffling where policy pronouncements, geopolitical maneuvering and sticky questions about labor create cross‑currents. If defense spending were to rise materially, it would lift a swath of industrial and tech firms that supply military systems. If AI chip flows to China accelerate, that could boost earnings for a narrow set of suppliers — but only if regulatory and payment frictions stay manageable.
And beneath the headlines sits the calendar: Friday’s December jobs report is the real event risk. The numbers will influence whether the Fed can start cutting rates later this year or must remain hawkish. For investors, that timing is everything.
If you’re tracking where the market may go next, keep an eye on three things: whether the jobs prints cool inflation fears, whether defense spending proposals become congressional reality, and whether the AI hardware cycle broadens beyond the chip giants into memory, networking and the firms building “physical AI” systems. Apple’s AI strategy and Google’s product integrations will also be watched closely — Apple recently announced plans to lean on external models for its next Siri upgrade, a strategic pivot worth studying (Apple to use a custom Google Gemini model to power next‑gen Siri).
Markets moved with distinct agendas on Thursday. The split personality — Dow up, Nasdaq down — is less about panic and more about investors deciding where the next chapter of growth will actually show up.