Market Rotation: Speculative Heat Eases, Fundamentals Return to Focus

After weeks of frothy trading in smaller speculative names, investors saw a reality check late this week. Quantum computing stocks like IonQ (NYSE: IONQ) and Rigetti Computing (NASDAQ: RGTI) tumbled over 20% in just two sessions, while Robinhood (NASDAQ: HOOD) dropped 15% in six trading days, reflecting a cooling in meme-style enthusiasm.

Despite the volatility in these corners of the market, large-cap indices remained broadly stable, underscoring that speculation is being drained without damaging the market’s core strength.

Earnings Season Ahead: Focus Shifts to Fundamentals

Investors’ attention is now turning toward upcoming Q3 earnings, where FactSet projects year-over-year profit growth of 8% for the S&P 500 — including 14.9% for the Magnificent 7 and 6.7% for the rest of the index.

With profit forecasts still trending upward and the U.S. federal deficit near 6% of GDP, analysts argue the macro backdrop remains broadly supportive of risk assets.

Recent Market Dynamics

Last week’s pullback is being viewed as a routine consolidation, with some analysts flagging muted reactions to Taiwan Semiconductor (NYSE: TSM)’s strong results and Oracle (NYSE: ORCL)’s bullish AI outlook.

Breadth remains a concern — both major exchanges saw more 52-week lows than highs on Friday, while financial stocks’ rebound was described as “lukewarm.” Still, the S&P 500’s bounce off its 50-day moving average suggests technical resilience.

The Ideal Setup Going Forward

Market strategists see an ideal scenario where choppiness persists a bit longer, cooling speculative excess and resetting investor expectations. Such a “controlled scare,” they argue, would position markets for a stronger year-end rally driven by fundamentals rather than momentum.