Contrasting U.S. Market Performance: Fed Rate Cut Offset by AI Trade Slump

This analysis is based on the Seeking Alpha report [1] covering U.S. market movements from December 8-12, 2025. The week’s contrasting performance across major indices was shaped by two key events: the Federal Reserve’s interest rate decision and a sharp slump in the artificial intelligence (AI) trade.

On December 10, the Fed cut the federal funds rate by 25 basis points to 3.5%-3.75% with three dissents, while maintaining its outlook for one additional rate cut in 2026 [2]. This less hawkish-than-expected decision initially boosted all three major indices: S&P 500 (+0.78%), Nasdaq Composite (+0.50%), and Dow Jones Industrial Average (+1.02%) [0].

However, the AI trade faced significant headwinds following earnings reports. Oracle reported after the close on December 10 that AI-related costs exceeded estimates and quarterly revenue fell short of expectations [3]. On December 12, Broadcom reported strong AI demand but narrowing profit margins, which further weighed on AI stocks [4]. These developments triggered a sector rotation out of growth/tech stocks (with heavy AI exposure) into defensive blue-chip stocks, which have minimal AI sector exposure.

As a result, the tech-heavy Nasdaq Composite (-1.48% weekly) was the hardest hit [0]. The blue-chip Dow Jones Industrial Average (+1.50% weekly) outperformed due to its diversified composition [0]. The S&P 500 (-0.28% weekly) fell slightly but less than the Nasdaq, reflecting its balance of growth and value stocks [0]. For AI stocks, Oracle (ORCL) dropped 13.9% to 189.59, and Broadcom (AVGO) fell 10.2% to 359.89, with volume surges (51.5M vs. 30.45M average for ORCL; 84.02M vs. 23.08M average for AVGO) indicating strong selling pressure [0].

1. Sector-specific fundamentals can override macroeconomic news
   : The Fed’s rate cut, which typically boosts market sentiment, was overshadowed by AI earnings disappointments, highlighting the influence of sector-level performance on broader indices.
2. Year-end risk reduction signals
   : The rotation from growth/tech to blue-chip stocks suggests investors may be adopting a more defensive stance as the year closes, potentially reflecting profit-taking or risk mitigation strategies.
3. Fed policy uncertainty persists
   : The three dissents in the rate cut decision indicate internal divisions within the Fed, which could lead to market volatility in response to future monetary policy announcements.

• Risks
  :
  • AI sector volatility: Oracle and Broadcom’s sharp declines demonstrate the AI trade’s sensitivity to earnings results, especially regarding cost management and profit margins [3][4].
  • Fed policy uncertainty: The three dissents signal potential unpredictability in future rate decisions, which could impact market sentiment and asset valuations [2].

• Opportunities
  :
  • Blue-chip stocks may benefit from ongoing sector rotation, as investors shift toward more defensive assets with stable cash flows [0].

• Factors to Monitor
  :
  • Upcoming earnings reports from other AI-related companies to gauge broader sector health.
  • Full Fed meeting minutes to better understand the central bank’s outlook on inflation, labor markets, and economic growth.
  • Institutional flow data to confirm if the rotation from tech to blue-chips is a temporary or longer-term trend.

: Users should be aware that the AI sector has shown high volatility recently, particularly in response to earnings reports. This could continue to impact tech-heavy indices and AI-focused stocks in the short to medium term.

• Index Performance (2025-12-08 to 2025-12-12)
  : S&P 500 (-0.28%), Nasdaq Composite (-1.48%), Dow Jones Industrial Average (+1.50%) [0].
• AI Stock Performance
  : Oracle (ORCL) -13.9% (volume 51.5M vs. 30.45M avg), Broadcom (AVGO) -10.2% (volume 84.02M vs. 23.08M avg) [0].
• Main Drivers
  : Federal Reserve 25bps rate cut (with three dissents) and AI trade slump driven by Oracle and Broadcom earnings [1][2][3][4].
• Information Gaps
  : Full Fed statement details on economic outlook, impact on other major AI stocks (e.g., NVIDIA, Microsoft), and institutional flow data.
• Decision-Making Context
  : The week’s events highlight the vulnerability of the AI trade and ongoing Fed policy uncertainty, suggesting a need for cautious monitoring of relevant factors.