TLDR
- The Magnificent Seven ETF jumped 2.3% Wednesday and is up over 7% in July after a 9% drop in June
- Apple hit a record high, up 4%, while Alphabet, Amazon, Meta, and Microsoft each gained around 3%
- Semiconductor stocks outside Nvidia have shed nearly $1.8 trillion in July, entering bear market territory
- $3.2 trillion has rotated between Mag 7 stocks and chip stocks, leaving the S&P 500 essentially flat
- Big Tech earnings are the next major test that could break the market out of its two-month trading range
The stock market has been stuck in a holding pattern for over two months. A massive $3.2 trillion rotation between Big Tech and chip stocks has kept the S&P 500 going nowhere fast.
The Roundhill Magnificent Seven ETF jumped 2.3% on Wednesday. It is now up more than 7% in July, bouncing back after a 9% slide in June — the second worst month on record for the fund.
Apple led the charge, climbing 4% to a record high. Alphabet, Amazon, Meta, and Microsoft each rose around 3% on the same day.
Chip Stocks Take the Hit
While Big Tech has been climbing, semiconductor stocks have been falling hard. The PHLX Semiconductor Index is down 13% in July.
Stocks outside Nvidia have lost nearly $1.8 trillion in market value this month. Memory stocks have been hit the hardest, with Micron, Samsung, and SK Hynix dragging the sector into bear market territory.
Semiconductor ETFs are now trading more than $40 billion per day. That is up from $9 billion just a year ago, according to data from Strategas.
Strategas ETF strategist Todd Sohn compared the rush into chip stocks to the ARKK boom of 2020. He said both saw high volumes and flows before eventually cooling off.
Semiconductors have approached 18% of the S&P 500, which Sohn called historically rare territory.
Software Stocks Hold Steady
Software stocks have held up much better than chips. Forty-four of 51 software stocks in the Yahoo Finance industry basket are positive in July, with a median gain of around 6%.
Only a handful of 62 semiconductor stocks are higher this month. The median chip stock is down nearly 20%.
IBM’s recent plunge showed that corporate technology budgets are under pressure. Even so, software as a group has stayed resilient compared to semiconductors.
The Mag 7’s five most stable members — Apple, Amazon, Alphabet, Meta, and Microsoft — have effectively become defensive plays. Investors rotate into them on bad days for chips.
There is another factor at play. If memory prices ease, Big Tech can keep spending heavily on AI at lower costs.
The gains and losses across these sectors have largely cancelled each other out. The S&P 500 has been bouncing between the same support and resistance levels since early May.
The Nasdaq Composite has moved in a similar pattern. The Dow has barely moved in July despite strong days for some of its components.
Big Tech earnings are coming. Those results could be what finally pushes the market out of its tight range in either direction.
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