The Four Major US Indices Experience Volatility and Adjustment: Warning Signs of Tech Stocks Valuation Imbalance and Capital Rotation

The recent trend of the Nasdaq has attracted widespread market attention. After reaching a record high, the index is undergoing a deep structural test amid a correction. Currently, the Nasdaq is at 23,214.69 points, up 4.2% for the week. However, behind this impressive performance lie valuation risks and shifts in capital flows that investors must face.

Illusion of a Short-Term Rebound: Rate Cut Expectations vs. Valuation Reality

The four major US indices have recently moved in tandem, with the Nasdaq leading the gain at 0.8%, driven mainly by two factors. First, declining US Treasury yields have increased bond attractiveness. Second, market expectations for a rate cut in December have risen—currently priced in at 80–85%. This expectation gap has historically fueled gains in Tech Stocks and growth stocks.

However, a deeper contradiction is emerging.

According to the latest corporate earnings data, the technology industry contributes 20.8% to overall corporate profits, yet its market capitalization weight is as high as 31.1%—meaning the valuation premium for Tech Stocks has reached a historic high. The forward P/E ratio of the Nasdaq is now 29.3x, over 20% higher than the average of 23–24x over the past decade. This mismatch between valuation and earnings is the most overlooked ticking time bomb in the market.

Capital Rotation Has Quietly Started: Who Is Secretly Exiting?

It is worth noting that, although short-term capital continues to push Tech Stocks higher, signals from the other side of the market tell a different story. Trading volume in bonds and options on interest rates has significantly increased, indicating some institutional investors are hedging against the possibility that rate cuts may not meet expectations. This is a manifestation of capital rotation—smart money gradually shifting toward more defensive assets such as energy, industrials, value stocks, and stable bonds.

This shift in flow is not accidental. As AI and semiconductor sectors face cost realization and profit-making challenges, factors like supply chain bottlenecks, intensified chip competition, and softening customer spending are weakening the previously high growth expectations. If AI momentum fails to meet market expectations, the Nasdaq could adjust by 5–10%. For portfolios heavily weighted in Tech and growth stocks, this would be the most painful scenario.

Divergence Between Fed Policy and Market Pricing

Volatility in the bond market and inconsistent statements from Federal Reserve officials further increase market uncertainty. Although the market generally bets on rate cuts, if inflation data does not improve as expected or if the Fed adopts a more hawkish stance, the overly priced rate cut expectations will face rapid correction. Such a policy reversal would be most damaging to high-valuation tech tools.

Key Window for Repricing by End of 2025

The next 1–3 months will be a critical turning point for the market. The Nasdaq is at the intersection of “high valuation × high interest rate expectations × AI growth expectations.” Short-term fluctuations may be amplified by news, but what truly matters are the ongoing changes in interest rate policies, capital flows, and the structural adjustments within the tech industry.

By the end of 2025 to early 2026, the market will enter a window of simultaneous repricing of valuation, earnings, and liquidity. For long-term investors willing to tolerate volatility, this could be a rare strategic deployment period in recent years—provided they maintain strong confidence in the long-term growth of Tech and AI industries.

For investors seeking stable returns, the current capital rotation presents an opportune moment to reassess asset allocation and shift toward value and defensive tools.