Investors shifted towards value stocks as the AI trade took a hit following another interest-rate cut. Expectations of economic resilience pushed money into cyclical sectors like small caps and industrials. Though optimism grew, markets still saw losses as the rotation trade continued, with precious-metals prices benefiting from the rate cut.

The Dow outperformed the Nasdaq and S&P 500 in the biggest three-day margin since January. Growth stocks fell out of favor as investors favored cheaper value stocks. The ratio of growth to value ETF prices hit its lowest level in months. Gold prices reached a record high, while the IT sector saw a significant drop.

The rotation trade is expected to benefit small-caps, regional banks, and cyclical sectors like financials and energy. President Trump’s tax cuts could boost consumer spending and corporate profits. A more favorable regulatory environment may lead to increased mergers among smaller lenders. Healthcare stocks have been rallying due to policy changes.

Value stocks, trading below intrinsic value, have become more attractive to investors. Growth stocks, expected to see rapid earnings growth, have dominated the market for over a decade. Rising Treasury yields could test the current rotation trade. The yield on the 10-year Treasury note approaching 4.2% poses a challenge to the shift in market dynamics.

Read more at Yahoo Finance: Investors are dumping stock-market winners and buying almost everything else. Why that’s a good sign.