Key Takeaways:
US technology stocks are trapped in an asymmetric selloff where blowout earnings fail to lift share prices while any disappointment triggers double-digit plunges, as systemic deleveraging and positioning unwinding override fundamentals.
The Nasdaq Composite fell 1.5% to 25,881.95 on Thursday as the Philadelphia Semiconductor Index entered a technical bear market, down 22% from its June peak.
"Tech can't seem to win — blowouts aren't sparking rallies and blow-ups are getting crushed," analysts at market insight group Vital Knowledge wrote in a note.
The S&P 500 fell 0.5% to 7,533.77 even as seven of every 10 stocks rose within the index, a divergence that shows how heavily the selloff in megacap technology names is weighing on benchmarks. The Dow Jones Industrial Average slipped 0.2% to 52,552.97. Taiwan Semiconductor Manufacturing Co. posted a 77% surge in quarterly net profit to a record NT$706.6 billion and raised its 2026 revenue growth forecast to more than 40%, yet its US-listed shares still fell 2.3%. IBM plunged more than 20% on Tuesday after issuing a profit warning tied to customers redirecting spending toward AI infrastructure.
The divergence between strong fundamentals and falling stock prices shows that positioning structure, not earnings, now dictates the trend. JPMorgan strategist Nikolaos Panigirtzoglou warned that a deleveraging process that began in June is still ongoing, with leveraged equity ETFs, options and margin accounts having further room to unwind, creating a persistent headwind for equities.
Memory and storage makers bore the brunt of the selloff. SanDisk tumbled 12.6%, Western Digital sank 9.2% and Seagate dropped more than 9%. Micron Technology fell 5.6%, paring its year-to-date gain to below 199%. Nvidia dropped 2.4%, making it the heaviest single weight on the S&P 500. Google parent Alphabet fell 4.4% and Amazon lost 1.2%.
SpaceX slid 3.1% to $131.11, falling below its $135 initial public offering price for the first time since its record $86 billion debut last month. The stock had surged as high as $225.64 before reversing course, reflecting a broader reassessment of sky-high valuations across the AI ecosystem.
Deleveraging Accelerates as Momentum Trade Unwinds
Goldman Sachs' momentum stock index tumbled 6% on Thursday alone and has shed roughly one-fifth of its value since the start of July. After adjusting for volatility, the drawdown in this factor has surged to a five-year high, reaching nearly 10 times the S&P 500's three-week realized volatility, according to Goldman Sachs.
The selling has spread across the entire artificial intelligence complex. Segments tied to optical interconnects, AI semiconductors and data centers have slumped between 5% and 12% in the past two sessions. Analysts have flagged "directionally wrong" price moves between AI-linked stocks and AI-risk stocks, as well as between hedge fund long positions and heavily shorted names, a pattern that points to a disorderly unwind of crowded positions.
Oil Adds to Pressure as Fed Stays Hawkish
Geopolitical tensions added another layer of strain. Brent crude settled at $84.23 a barrel on Thursday, up 15% since the start of July, after the US launched a sixth consecutive day of strikes on Iran, snarling traffic through the Strait of Hormuz. Higher oil prices threaten to reignite inflation just as Federal Reserve Chair Kevin Warsh said this week the central bank has "no tolerance" for persistently high price growth.
Healthcare provided a rare bright spot. UnitedHealth Group delivered a double beat on adjusted earnings and revenue for the second quarter, helping limit the Dow's decline. Abbott Laboratories jumped 10.7% after raising its full-year earnings forecast.
The CBOE Volatility Index rose for a fifth consecutive session, though implied correlations remain near historic lows, suggesting the turbulence stems from a structural repricing of factors rather than broad-based panic. The next major catalyst for markets comes next week when the Fed's July policy meeting begins, with traders pricing in a 78% probability of rates remaining unchanged.
This article is for informational purposes only and does not constitute investment advice.
