Rotation Out of Chips Masks Broader Strength – US Market Wrap

A rotation out of high-profile chipmakers into more economically sensitive sectors gathered pace, with stocks supported by strong earnings and a decline in oil prices. The equal-weighted S&P 500, which removes market-cap bias, hit record highs, while the Dow Jones Industrial Average rose 1%, offsetting a semiconductor selloff that left the Nasdaq 100 near a technical correction. Brent crude posted its worst three-day stretch since 2020, easing inflation concerns and pushing bond yields lower ahead of the Federal Reserve decision.

The downturn in semiconductor heavyweights highlights how quickly sentiment has shifted on one of the market’s most crowded trades, creating a challenging backdrop ahead of key megacap earnings. Microsoft and Meta are due to report Wednesday, followed by Apple and Amazon on Thursday.

While equities advanced, the nature of the move weighed heavily on certain quantitative strategies, as simultaneous declines in chipmakers and gains in defensive stocks drove the Dow Jones US Thematic Market Neutral Momentum Index to its steepest drop since February. Elsewhere, Treasuries extended gains for a third straight session, supported by the sharp pullback in oil as Middle East tensions eased.