It was the worst-case scenario for the stock market -- and yet it didn't end up feeling so bad.
It should have been a bloodbath. IBM warned of a slowdown in its software business, news that caused its stock to plunge 25% on Tuesday, yet another example of AI disruption upending a blue chip. Chip stocks have been hit hard too -- the iShares Semiconductor exchange-traded fund has tumbled 8.8% this week -- due to intense volatility for memory leaders Micron Technology and SK Hynix and others. Combined, the State Street Technology Select Sector SPDR ETF has fallen 4.5%, making it the worst-performing sector ETF this week.
Yet despite all swings, dings, and zings, the S&P 500 index is down just 0.6% for the week, and the Nasdaq Composite is off 1.5%. The Dow Jones Industrial Average is even on track to finish the week relatively flat, with only a 0.2% loss through Thursday.
Chalk it up to the continued broadening of the market rally.
Strong results from many top banks helped fuel the Dow's move. Goldman Sachs Group, the biggest component of the price-weighted benchmark, surged 9% to a record high following its second-quarter earnings report, while JPMorgan Chase, another Dow component, also traded at a record high after its own stellar results. Bank of America, BNY, and Morgan Stanley also traded at or near all-time highs on the heels of their latest earnings. All told, the State Street SPDR S&P Bank ETF rose 3.7% through Thursday, while the State Street Financial Select Sector SPDR ETF is up 1.9% for the week, hitting an all-time high on Thursday.
Phil Orlando, chief market strategist at Federated Hermes, expects a continued rotation away from tech, particularly those overheated semiconductor stocks, with investors taking their winnings from chips and putting them into value sectors instead, including financials, healthcare, and industrials.
The good news is that the market should continue heading higher, even if the rotation makes it uncomfortable at times. "Prepare for more chop and volatility," Orlando says. "But we could end the year at new all-time highs of around 8000 for the S&P 500."
It's all about earnings. While the S&P 500 has gained 10.2% since the start of the year, it's trading at 20.6 times 12-month forward earnings, down from 22.2 times at the end of 2025, a sign that earnings have been driving the gains.
That will need to continue. According to FactSet, analysts are forecasting earnings growth of 24.4% for the S&P 500 in the second quarter, with gains of 27% and 24.6% in the third and fourth quarters, respectively. Earnings from tech stalwarts Alphabet, Tesla, Texas Instruments, and Intel, as well as from Charles Schwab, GE Vernova, AT&T, and American Express, in the coming week should provide evidence that those goals are achievable -- or not.
"With valuations at these levels, you need earnings to continue getting revised upward, and that's a big ask because estimates are already high, " says Mary Jane "M.J." Matts, director of large-cap equities at CS McKee and a portfolio manager of the North Square Disciplined Value ETF. "If estimates get revised up, the market can hold on to the multiple it has."
While it may be messy, Mary Ann Bartels, chief investment strategist at Sanctuary Wealth, believes the S&P 500 can hit 8225 by year end -- even though she is expecting typical seasonal volatility in September and October that could lead to a brief correction.
"Our theme for the second half of 2026 is the return of the Bucking Bull -- a market that continues to climb, but not in a straight line," she wrote in a second-half market preview, adding that "ongoing sector rotation" can continue to lift the S&P 500.
So don't worry about the roller-coaster ride for semiconductor stocks and the rest of tech. Solid earnings growth for many other sectors should allow the broader market to climb further and finish the year at new all-time highs.
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