Key Takeaways:
Strong earnings from TSMC and ASML failed to halt a selloff that has pushed the semiconductor sector into a bear market.
The Nasdaq Composite fell 1.5% to 25,881.95 on Thursday as the semiconductor sector entered a technical bear market, down 22% from its June peak.
"It comes strictly down to the weight of the chips in the S&P 500," said Paul Nolte, senior wealth advisor and market strategist at Murphy & Sylvest. "Three or four years ago, it was 8%, and now it's over 20%."
The Philadelphia Stock Exchange Semiconductor Index dropped 4.3%, with memory-chip makers bearing the brunt. SanDisk fell 12.6%, Western Digital and Seagate Technology each lost more than 9%, and Intel and Micron Technology declined about 6%. The S&P 500 fell 0.5% to 7,533.77, while the Dow Jones Industrial Average slipped 0.2% to 52,553.32. Declining stocks outnumbered advancers by a 1.64-to-1 ratio on the Nasdaq. Trading volume on U.S. exchanges was 17.19 billion shares, below the 21.19 billion average over the prior 20 sessions.
The divergence between strong earnings and falling stock prices signals that positioning, not fundamentals, now drives price action. With the Goldman Sachs momentum factor index down roughly 20% in July alone and leverage still elevated across ETF and margin accounts, analysts warn the unwind may have further to run.
The selloff has created a pattern that leaves investors with few good options. TSMC posted a 77% jump in quarterly net profit to a record 706.6 billion New Taiwan dollars, or about $22 billion, and raised its 2026 revenue growth forecast to more than 40%. Its U.S.-listed shares fell 2.3%. ASML and Micron also delivered results that beat consensus estimates, only to see their stocks decline.
"Tech stocks seem unable to win — beating expectations fails to lift prices, while missing them triggers severe declines," analysts at Vital Knowledge said.
The dislocation extends beyond semiconductors. SpaceX, which went public in June at $135 a share and surged to a high of $225.64, closed Thursday at $131.11, below its initial public offering price. Google parent Alphabet fell 4.4%, and Amazon.com declined 1.2%, as investors questioned when massive capital spending on data centers would generate meaningful returns.
Deleveraging Accelerates as Momentum Unwinds
The rout reflects a systemic deleveraging that began in June, according to JPMorgan Chase strategist Nikolaos Panigirtzoglou. "We believe there is more room for deleveraging in levered ETF, options and margin accounts, which will act as a persistent headwind for equities," he said.
The Goldman Sachs momentum factor index fell 6% in a single session Thursday, bringing its July decline to roughly 20%. Volatility in the factor has surged to about 10 times the three-week realized volatility of the S&P 500, Goldman data show, indicating a disorderly unwind of crowded trades.
The U.S. 10-year Treasury yield edged lower as investors rotated into defensive assets, while the U.S. dollar index held steady. Oil prices ticked higher after the U.S. launched fresh strikes against Iran, adding a geopolitical layer to the risk-off tone.
Earnings Season Tests High Valuations
Second-quarter earnings season is underway with a high bar. S&P 500 companies are expected to post year-on-year earnings growth of 24.8%, with the technology sector alone forecast to grow 65.5%, according to LSEG data. But the market's reaction to results so far suggests that even those elevated expectations may not be enough.
UnitedHealth Group rose 1.2% after beating estimates and raising its 2026 forecast, helping the healthcare sector gain 2.2%. But GE Aerospace slid 4.1% despite lifting its profit outlook, and United Airlines fell 1.8% as rising oil costs weighed on guidance.
The next major test comes with earnings from hyperscale cloud providers, which strategists say will determine whether the selloff deepens or stabilizes. Until then, the market remains hostage to the momentum unwind.
This article is for informational purposes only and does not constitute investment advice.
