The S&P 500 and Nasdaq Composite retreated on Wednesday as the rotation out of high-flying technology shares and into more rate-sensitive names continued.

The broad S&P 500 lost 1.39% to close at 5,588.27. The tech-heavy Nasdaq slid 2.77% to end at 17,996.92, posting its worst session since December 2022 and closing below 18,000 for the first time since July 1.

But the Dow Jones Industrial Average bucked the downtrend, adding 243.60 points, or 0.59%, to end at 41,198.08. That propelled the index to its first-ever close above 41,000.

A gain of about 4.5% in UnitedHealth following a Wall Street upgrade on the back of its strong earnings report helped lift the 30-stock index. This builds on Tuesday's rally of more than 700 points, which marked the blue-chip index's best day in more than a year.

On the other hand, the S&P 500 and Nasdaq were weighed down by a continued pullback in megacap technology stocks. That marks a turn after tech stocks' monster run this year amid the artificial intelligence craze.

In fact, Wednesday's session was the first since 2001 in which the Nasdaq posted a loss exceeding 2.5% while the Dow registered a gain. Within the S&P 500, information technology and communication services were the two worst performing sectors in the session.

Notably, Meta Platforms tumbled 5.7%, while big tech peers Netflix and Microsoft dropped more than 1%. Apple slid 2.5%.

Semiconductor stocks also struggled after Bloomberg News reported that the Biden administration is considering tougher trade restrictions if companies continue granting China access to U.S.-made technology.

The VanEck Semiconductor ETF (SMH) fell more than 7% following the report, its worst day since March 2020. Nvidia and U.S.-listed shares of Taiwan Semiconductor sank more than 6% and nearly 8%, respectively.

The Russell 2000 slipped 1%, ending its five-day win streak. Still, the small cap-focused index has climbed more than 9% over the last five trading days as the market rally broadened out. Meanwhile, the Nasdaq has shed more than 3% in the same period amid the tech sell-off.

This rotation comes as traders have become more optimistic on interest rate cuts, which should benefit small caps and companies with higher financing costs. Fed funds futures trading implies a high likelihood the Federal Reserve will lower rates in September, according to the CME FedWatch tool.

"People are literally just selling some of the megacaps, taking some profits, and buying some of those more cyclical companies," said Mike Dickson, head of research and quantitative strategies at Horizon Investments. "I would not be surprised to see this continue until earnings."

Correction: An earlier version misstated the day when the Dow rose more than 700 points.