The PHLX Semiconductor Index hit a record high in late June and has since tumbled nearly 20%
Investors are selling highflying chip stocks and buying other parts of the market that might benefit from a resilient economy
Investors seem to be second-guessing the stunning rally in chip stocks as another earnings season picks up steam.
Semiconductor stocks, following their stratospheric rise this spring, were on the verge of a bear market on Thursday.
The benchmark PHLX Semiconductor Sector Index SOX of the 30 biggest U.S.-listed chip stocks was down 19% on Thursday from its June 22 record high, according to Dow Jones Market Data.
Its 4.3% retreat on Thursday to 11,8767.50 left it on the doorstep of the 11,707.78 closing level that would confirm a bear market, defined as a pullback of at least 20% from a previous peak.
Chip stocks gained in the spring as investors cooled on the "Magnificent Seven" tech companies MAGS footing the bill for the AI data-center buildout. Money instead flocked to chipmakers and other industries set to benefit from the firehose of spending.
Yet recent signs point to another shift taking place under the hood of the stock market. The S&P 500's financials sector XX:SP500.40 logged a back-to-back record close on Thursday following strong bank earnings. The Dow Jones Transportation Average DJT was up more than 30% on the year, near record territory, while the State Street SPDR S&P Retail ETF XRT ended near its highest since early 2022, according to FactSet.
"I think the broadening is very healthy," said David Royal, chief financial and investment officer at Thrivent. It also points to promising signs in recent labor-market data and retail sales. "You don't make an auto purchase unless you have some degree of confidence" in the jobs market, he added.
That contrasts with the SOX index, where all 30 constituents were lower from the benchmark's June record high. The worst performer since the peak has been Marvell Technology $(MRVL)$, as the below chart from Dow Jones Market Data shows.
Marvell is down almost 40% from the SOX's peak, but the stock is still up 121% in 2026, according to FactSet.
The pullback could reflect investors taking some profit - or that they might be moving on altogether.
"One of the things we are learning is that memory is short when it comes to dramatic selloffs," said Kevin Gordon, head of macro research and strategy at the Schwab Center for Financial Research. "I don't think it's a terrible red flag."
In the past decade, the SOX recorded six pullbacks of 20% or more and 31 pullbacks of at least 10%, according to Dow Jones Market Data. That compares with only two S&P 500 pullbacks of at least 20% and eight of at least 10%. Of note, some of those 10% pullbacks occurred during bear markets.
There are also earnings to consider. Wall Street expects the S&P 500 index SPX to see robust earnings growth of 23.6% at an annual rate in the second quarter, but for stunning 131% growth for semiconductors and related equipment earnings, according to the latest FactSet estimates.
"Tech might have awesome earnings, but in one, two or three quarters, will it still be true?" asked David Russell, global head of market strategy at TradeStation.
"We are seeing fatigue in tech stocks and doubts about the longer-term staying power of the chips," he said.
It hasn't helped that Taiwan Semiconductor Manufacturing Co.'s $(TSM)$ shares have tumbled about 5.6% this week, despite the chipmaker reporting a record quarter for profit.
Shares of South Korea chipmaker SK Hynix $(SKHY)$ also have seen extreme volatility. The company pulled off the biggest U.S. IPO of a foreign company almost a week ago. Its American depository shares were down almost 14% on Thursday.
"We've priced in years of growth," Russell at TradeStation said. That has investors redeploying capital into other sectors of the market that could benefit from a solid economy, he added.
There's also time before the first batch of megacap tech "hyperscalers" steal the spotlight, with Alphabet $(GOOG)$ $(GOOGL)$ and Tesla $(TSLA)$ earnings results due July 22.
"It's a fleeting thrill," said Gordon at Schwab about chips stocks. "Sometimes it's gone, but it comes right back."
Mike DeStefano contributed
-Joy Wiltermuth
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(END) Dow Jones Newswires
July 16, 2026 17:02 ET (21:02 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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