Good News Doesn't Lift Stocks, Positions Too Crowded! Chip Stocks Take a Backseat as Wall Street's 'Ordinary Stocks' Step Up to Support the Market

Over the past week, 'ordinary' has become Wall Street's best investment strategy.

Semiconductor stocks continue to retreat. Despite being one of the most important sectors in the U.S. stock market, their sharp decline has not significantly impacted the broader market. This is because, as popular chip stocks are being sold off, energy, retail, banking, and transportation stocks are rising simultaneously, supporting overall market performance.

Meanwhile, the large tech stocks known as the 'Magnificent Seven' had gradually stabilized in recent weeks after a lackluster Q2 performance. However, this week, following a profit warning from IBM (IBM-US), selling pressure spread across the tech sector, ultimately causing the Magnificent Seven to decline alongside semiconductor stocks. IBM recorded its worst weekly performance since records began in 1972.

Nonetheless, Wall Street strategists believe the recent market volatility resembles a healthy rotation of capital rather than the start of a new major downturn. The S&P 500 has traded in a range over the past six weeks and is currently about 2% below its all-time closing high set on June 2.

'Ordinary Stocks' Outperform Large-Cap Stocks

Looking back at the past week, the S&P 500 closed lower, marking the second weekly decline in the past four weeks. However, the equal-weighted S&P 500 index performed significantly better, outperforming the traditional market-cap-weighted S&P 500 by over one percentage point for the week.

Compared to the Philadelphia Semiconductor Index (SOX), the relative performance of the equal-weighted S&P 500 reached one of the best levels in decades.

The ETF tracking the equal-weighted S&P 500—the Invesco S&P 500 Equal Weight ETF (RSP-US)—recorded its largest weekly outperformance against the iShares Semiconductor ETF (SOXX-US) since May 2009.

Adam Phillips, Chief Investment Officer at EP Wealth, said: 'Currently, ordinary stocks are indeed outperforming market leaders.'

He further noted: 'All the data indicate this is just a rotation of capital. The semiconductor sector, which led the rally, is temporarily hitting turbulence, but I don't believe the bull market is over. Investors are simply seeking relatively safer assets.'

Strong Earnings Fail to Lift Stock Prices

Semiconductor stocks began weakening from late June. Despite recent strong earnings reports from Samsung Electronics, TSMC (TSM-US) (2330-TW), and Micron (MU-US), their stock prices have continued to languish.

Stephanie Link, Chief Investment Strategist at Hightower Advisors, said: 'If a company reports great earnings but its stock doesn't rise, it means almost everyone in the market is already on the same side.' In other words, positive news has already been priced into the stock.

Market Remains Resilient, Breadth Strong

On the other hand, although internal market volatility was intense in July, index-level fluctuations were relatively limited. The S&P 500 fell 1% on Friday, the first time since June 26 that the index moved more than 1% in a single day.

U.S. stocks also weathered another potential negative catalyst: renewed tensions between the U.S. and Iran. The U.S. military announced another airstrike on Friday, which briefly affected the market's late-session movement.

Gina Martin Adams, Chief Market Strategist at HB Wealth, said: 'It's truly surprising that U.S. stocks didn't fall deeper amid the rapidly deteriorating Middle East situation and the semiconductor sell-off.'

She pointed out: 'When tech stocks weaken and other sectors step up to rise, that's actually a healthy market signal.'

Martin Adams noted that market breadth remains robust. As of Thursday, approximately 69% of S&P 500 components were trading above their 200-day moving average, the highest level since the end of 2024. As of Friday's close, about 66% of S&P 500 stocks remained above their 200-day moving average, indicating that the long-term trend for the majority of stocks remains upward.