Stock investors' long-awaited rotation out of the speculative superstars of yesteryear could finally have arrived.

Until recently, the winners of 2003 had continued to lead the pack in 2004, casting doubt on analysts' predictions that large-cap value names would outshine small-cap growth stocks this year. But over the past week, the tide has started to turn.

Since Jan. 26, the

Nasdaq

has tumbled almost 6%, with networking stocks skidding 10% on average. Meanwhile, the

Dow Industrials

are off by just 2% and stocks like

Procter & Gamble

(PG) - Get Report

and

McDonald's

(MCD) - Get Report

have climbed 3% and 4%, respectively.

The trend continued Wednesday, with the Nasdaq falling better than 2% at midafternoon on lukewarm guidance from

Cisco

(CSCO) - Get Report

, while the Dow largely held its ground, falling less than half-a-percent.

Some analysts said they are starting to take a more defensive posture on the market. "The

Fed

may have put a lid on further equity market gains at this juncture," said Smith Barney strategist Tobias Levkovich.

In changing the wording of its policy statement last week, the

Federal Reserve

raised fears that an interest rate hike would come sooner than expected. Many have argued the easy-money policies of the Fed have made speculation too safe over the last 14 months.

Levkovich now recommends underweighting the technology sector, and suggests that investors overweight household products because these stocks have outperformed the market in every pullback since the bubble burst in 2000.

"It is plausible to us that dividend-yielding stocks may begin to outperform as well, while small- and mid-caps could lose their leadership status in the weeks ahead," he said. "It would seem that we might be at a critical transition from one stage to the other -- from celebration to rotation."

So far this year, nondividend-paying stocks have jumped 5.79% on average, compared to a 1.5% gain for stocks that pay a dividend, according to Howard Silverblatt, editor of quantitative research at Standard & Poor's. Meanwhile, growth stocks have outpaced value, and small-cap stocks, as measured by the Russell 2000, have beaten large-cap names by about one percentage point.

Despite calls for a shift in leadership at the end of last year, two of the biggest gainers in 2003,

Lucent

( LU) and

Avaya

(AV)

are up 53% and 35%, respectively, this year.

While momentum has clearly driven these issues higher, the fundamentals of both companies also seem to be improving. Avaya, a maker of corporate phone systems (and a Lucent spinoff), said net income rose to $10 million in its fiscal first quarter, reversing a loss of $121 million a year earlier, and the firm said it is seeing the beginning of a rebound in capital spending.

As for Lucent, it registered its second quarterly profit after nine losses in a row. CEO Patricia Russo said she is "clearly seeing evidence that the market is stabilizing."

Other communication-equipment stocks have also soared this year.

Andrew Communications

( ANDW),

Harmonic

(HLIT) - Get Report

, and

C-Cor Net

( CCBL) are all up about 50% since the start of the year, while

Catapult Communications

( CATT) has climbed 54%.

Still, all of these stocks were lower on Wednesday, with Lucent and Harmonic each down 4%.

Silverblatt said he is seeing signs that psychology is changing. Just last month, nondividend-paying stocks were outperforming dividend payers by a much wider margin that they are today, suggesting that higher-quality names could be starting to catch up.

Paul Nolte, director of investments at Hinsdale Associates, thinks the market is likely to correct through spring and that prior leaders like tech and telecom are going to suffer. "Consumer stocks, banking and energy are taking over from technology," he said. "So if we are to believe the sectors, the correction is at hand, and a defensive posture is where the money is going."

A vocal minority of strategists believe the party in tech isn't over. Despite the recent weakness, Ed Yardeni of Prudential Equity Group, thinks high-growth, nondividend-paying tech stocks will continue to lead the way this year. "The technology story looks excellent on both a fundamental and earnings basis," he wrote. "Information technology forward earnings are the highest they have been since late 2000. Both 2004 and 2005 expectations have been increasing."

Although valuations in the group are lofty, Yardeni said "the stocks are going higher at a double-digit rate" if earnings expectations prove to be realistic.