Wednesday's stock market decline looks very bad. The Dow Jones Industrial Average fell 500 points and the S&P 500 index fell more than 2%. Worries about Alphabet and Tesla's earnings caused the 'Seven Tech Titans' and other tech sectors to collapse, causing the Nasdaq Composite Index to plummet by 3.6%.

However, a deeper analysis shows that utility and healthcare stocks rebounded on Wednesday. The dividend yields of these two sectors are often very high. The stock prices of electrical utility company Southern Company and biotechnology company (a component of the Dow) Amgen hit historic highs.

At the same time, the performance of the energy and bulk consumer sectors is far better than that of the overall market.

One-third of the stocks in the Dow and S&P 500 indices closed higher on Wednesday. AT&T (T.N), Kimberly-Clark (KMB.N), Johnson & Johnson (JNJ.N), Verizon (VZ.N) and Coca-Cola (KO.N) all achieved steady gains. Therefore, the recent market fluctuations may be a sign of rotation that should have occurred earlier, rather than a comprehensive correction.

Callie Cox, chief market strategist for Ritholtz Wealth Management, said in a report, "This may be one of the most bullish sell-offs I've ever seen. People sell not because headlines or data tells them the economy is in grave danger. Instead, they are just rebalancing, shedding technology stocks and picking up rate-sensitive stocks in the process."

On Thursday, the Dow rebounded thanks to IBM's (IBM.N) strong earnings report. IBM's stock price rose 4%. The S&P 500 and Nasdaq indices closed lower after a volatile trading session. However, the equal-weighted S&P 500 ETF closed slightly higher, and the Russell 2000 small-cap index rose 1.3% - another healthy sign of market breadth improvement.

This means it's not time to panic yet. But now may be the time to de-emphasize large tech and AI trades and look for new market leaders.

Yung Yu Ma, CIO at BMO Wealth Management, said in an email, "We've always believed that the market's enthusiasm for AI will fade. Wednesday's market action opened many people's eyes who may have been overly focused on the giant tech stocks."

"Investors should look for opportunities and realize that these opportunities may be outside of technology," Ma added.

He also said that the recent rebound in small-cap stocks is likely to continue, especially if the Fed cuts interest rates in September, as widely expected.

"The chase for small-cap stocks should still have room. Earnings growth for small companies will improve by the end of the year, and the Fed will soon begin a year-long cycle of rate cuts, which will benefit small companies a lot," Ma wrote.

A GDP report on Thursday that exceeded expectations could also fuel more hope for the Fed's so-called soft landing. More and more people even expect the Fed to cut interest rates by half a percentage point in September. This could once again boost small-cap stocks and defensive sectors.

Philip Straehl, CIO of Stifel Wealth Management, said in a report this week,"slower inflation, rate cuts and election focus may provide catalysts for further stock market expansion, as recent market rotations have shown."

Straehl also said, "Investors should be prepared for more volatility." He pointed out that the recent rotation of large-cap tech stocks shows that technical factors are at work, such as momentum trading closures and deleveraging. He is extremely bullish on small-cap stocks, believing that they will"continue to outpace large-cap stocks at a rate of 3-4% per year in the next decade."

Some people point out that the big drop on Wednesday should have appeared in the market earlier.

This should create buying opportunities, even for tech and other stocks that have helped lead the S&P 500. Ryan Detrick, chief market strategist for investment consulting firm Carson Group, wrote on X earlier this week that this was the first time the S&P 500 had fallen 2% this year.

He wrote: "There will be one or two bad days in most years, and this happens," he added, saying that it is normal for the S&P 500 index to fall six times a year. Here's some really good news. Detrick said that in the past 14 times, the daily decline of the S&P 500 index in a year was less than five times, each time falling by 2%. Of these 14 times, the blue chip index rose at the end of the year, with an average increase of 19.3%.

Of course, the year is not over yet. August and September - historically difficult months for the stock market - are still ahead. The US presidential election could also exacerbate market volatility. But investors should not overlook the strength of other parts of the market and focus only on the weakness of tech stocks.

The recent sector rotation looks like a healthy sign that the bull market still has some momentum.

Editor/Lambor