Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., December 10, 2025. REUTERS/Brendan McDermid

By Sinéad Carew and Johann M Cherian

Dec 11 (Reuters) - The S&P 500 and the Dow boasted record closing highs on Thursday after a Federal Reserve policy update that was less hawkish than expected while the tech-heavy Nasdaq underperformed as Oracle's financial update made investors wary of artificial intelligence bets.

Oracle shares tumbled 10.8% in their biggest one-day drop since late January and they were the top S&P 500 decliner after the company's quarterly forecasts fell short of analysts' estimates. It had also warned that annual spending would run $15 billion higher than previously planned, stoking fears about its big push into AI.

The cost of insuring Oracle debt against default surged as investors feared that the company's heavy reliance on debt financing could be part of an AI bubble similar to the dotcom bust of the early 2000s.

While Oracle helped drag other technology names lower, the Dow rallied along with the Russell 2000 small-cap index, which closed up 1.2% and the S&P 500 value index, up 0.6%, outperformed the growth index, which ended off 0.12%.

"The name of the game is market rotation. We're seeing small caps, the Dow and cyclicals all start to do better in anticipation of a reacceleration of global growth," said Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments.

Investors also continued to digest the U.S. central bank's update from Wednesday, when the Fed lowered borrowing costs by 25 basis points and Chair Jerome Powell signaled a pause on further easing.

However, investors were relieved that the Fed still had some rate cuts on its dot plot as it balanced still-elevated inflation with signs of labor market weakness.

Mark Malek, CIO at Siebert Financial, said that continued digestion of the Fed meeting and Powell's commentary brought a tailwind on Thursday.

"Clearly, the market was tempering itself for a more hawkish cut. Most of us were certainly anticipating Chairman Powell to come out of the gate with a little bit more of a negative tone," he said, adding that the Fed's focus on employment as "something that they have to watch carefully" was notable.

As if to illustrate that point, Thursday's data from the Labor Department showed jobless claims rose to 236,000 for the week ending December 6, compared with estimates of 220,000.

The Dow Jones Industrial Average rose 646.26 points, or 1.34%, to 48,704.01, vaulting above its November 12 closing record. The S&P 500 gained 14.32 points, or 0.21%, to 6,901.00, breaching its October 28 record close. The Nasdaq Composite lost 60.30 points, or 0.25%, to 23,593.86.

Communications services and technology stocks were the biggest losers among the S&P 500's 11 major industry sectors, falling 1% and 0.6% respectively. The Philadelphia Semiconductor Index - also central to the AI-trade - closed down 0.8%.

The strongest sector gainers were materials, which rallied 2.2% and financials, which added 1.8% and was the S&P 500's biggest index point boost.

Broadcom shares fell 1.6% in the regular session but rose 4% in late trading after the company forecast revenue of about $19.1 billion for the current quarter, compared with Wall Street expectations for $18.27 billion, according to data compiled by LSEG.

The blue-chip Dow included several financial stocks among its top gainers. Visa led the charge with a 6.1% rally while American Express, JP Morgan and Goldman Sachs all rose more than 2%.

Walt Disney <DIS.N> shares closed up 2.4% after the company announced a $1 billion equity investment in OpenAI. The entertainment company's bet on AI likely helped to ease some concerns about the AI space, according to Siebert's Malek.

Advancing issues outnumbered decliners by a 2.2-to-1 ratio on the NYSE, where there were 673 new highs and 69 new lows. On the Nasdaq, 2,667 stocks rose and 2,087 fell as advancing issues outnumbered decliners by a 1.28-to-1 ratio.

The S&P 500 posted 52 new 52-week highs and 3 new lows while the Nasdaq Composite recorded 185 new highs and 81 new lows.

On U.S. exchanges, 17.05 billion shares changed hands, compared with the 17.39 billion 20-day moving average.

(Reporting by Sinéad Carew in New York and Johann M Cherian and Pranav Kashyap in Bengaluru; Additional reporting by Purvi Agarwal in Bengaluru; Editing by Shinjini Ganguli and Matthew Lewis)