Tech giants stumble, small-cap stocks feast! When will the big rotation in the US stock market end? This indicator is crucial

According to the financial news app Zhitong Finance, Goldman Sachs stated that the trend of rotating from large-cap tech stocks to small-cap stocks will continue until large companies raise revenue guidance. Goldman Sachs stock strategist David Kostin stated that the Russell 2000 Index has recorded its strongest five-day performance relative to the S&P 500 Index in at least 40 years. He said, "Out of the total return of 16% in the S&P 500 Index from the beginning of the year, only NVIDIA (NVDA.US) contributed more than a quarter." Kostin mentioned, "Along with Microsoft (MSFT.US), Apple (AAPL.US), Alphabet (GOOGL.US, GOOG.US), Amazon (AMZN.US), and Meta (META.US), these 6 stocks have contributed 55% of the total return of 16% year-to-date. However, in the past 7 days, NVIDIA's stock price has plummeted by 13% (although it is still up 138% year-to-date). Other stocks have generally fallen by around 7% (but the average return year-to-date is 23%)." Kostin believes that the rotation is driven by four reasons: With the Fed expected to cut interest rates and U.S. inflation data slowing down, this means that interest expenses for small-cap stocks will decrease; Stable economic growth data; Market expectations that Trump will win the U.S. election, and during Trump's presidency, small-cap stocks outperformed other companies and were less affected by tariffs; Narrowing of the growth premium for large-cap stocks. "The recent strong performance of small-cap stocks may continue unless there are significant changes in the macro environment, or large-cap tech stocks announce second-quarter results that prompt analysts to raise revenue estimates for the next few quarters," Kostin stated. "In the late 1990s during the Internet boom, revenue revisions were a key variable to watch because they ultimately signaled when momentum would reverse," he added. "The potential recovery of AI trading—thus reversing the recent underperformance of large-cap stocks compared to small-cap stocks—will depend on revenue revisions." "If large tech companies exceed market expectations and raise their forward revenue guidance, the outstanding performance of the S&P 500 Index will resume."