A massive $3.2 trillion sector rotation between Big Tech and semiconductor stocks has left the S&P 500 trapped in a tight trading range for over two months. The Roundhill Magnificent Seven ETF (MAGS) surged 2.3% on Wednesday and is now up more than 7% in July, recovering from a 9% drop in June. Apple hit a record high, rising 4%, while Alphabet, Amazon, Meta, and Microsoft each gained around 3%.
Meanwhile, the PHLX Semiconductor Index is down 13% in July, with chip stocks outside Nvidia losing nearly $1.8 trillion in market value. Memory stocks like Micron, Samsung, and SK Hynix have dragged the sector into bear market territory, and semiconductor ETFs now trade over $40 billion daily compared to $9 billion a year ago. Strategas strategist Todd Sohn likened the rush into chips to the ARKK boom of 2020.
The rotation has been so balanced that the S&P 500 has barely moved since early May, bouncing between the same support and resistance levels. Software stocks, by contrast, have held up well, with 44 of 51 software names positive in July and a median gain of 6%. Big Tech's most stable names — Apple, Amazon, Alphabet, Meta, and Microsoft — have become defensive plays, attracting inflows whenever chip stocks falter.
Thursday pre-market action showed the trend persisting: Nasdaq 100 futures fell 0.6% and S&P 500 futures dipped 0.2% as the AI rally faded. TSMC posted record Q2 revenue but warned of higher prices, sending shockwaves through chip stocks. Upbeat earnings from UnitedHealth and GE Aerospace provided some offset, while Netflix earnings awaited after the close. Geopolitical tensions added uncertainty after fresh U.S. airstrikes on Iran, and oil prices slipped. Upcoming retail sales and jobless claims data, along with a barrage of Big Tech earnings, are expected to dictate the next major move for markets.
