July Could Be the Worst Month for Chipmakers' Stocks Since the Dot-Com Era

The Philadelphia Semiconductor Index fell 4.5% at the close of trading on July 28. Since the beginning of July, the index has lost about 23%, which could mark its worst monthly performance since September 2001, when it plummeted 33.6%, according to MarketWatch.

The VanEck Semiconductor ETF, which tracks chipmakers’ stocks, fell 3.5% over the course of the day, marking its fourth consecutive day of declines. Micron shares fell 8.9%, Western Digital shares fell 6.9%, SanDisk by 14.3%, SK hynix American Depositary Receipts by 9%, AMD by 8.2%, Intel by 5.9%, and Marvell Technology by 7.8%.

Under pressure from a sell-off in the semiconductor sector, the Nasdaq Composite Index fell 0.2% on July 28, while the S&P 500 and the Dow Jones Industrial Average ended the day in positive territory. At its intraday low, the Nasdaq was down 1.4%, but managed to recoup most of its losses thanks to software developers’ stocks. The iShares Expanded Tech-Software Sector ETF, which tracks software companies, rose nearly 1%.

By selling off shares of chipmakers, investors are shifting capital into “old economy” stocks. For example, thanks to strong earnings reports, Sherwin-Williams shares rose 8% and Coca-Cola shares rose 5%. The State Street Health Care Select Sector SPDR ETF and the financial sector fund XLF rose to record highs thanks to gains in insurance stocks, according to CNBC.

“It was truly a broad-based rotation across the entire market,” Ross Mayfield, an investment strategist at Baird, told CNBC. “The pullback in high-growth stocks has been going on for six to eight weeks now, and it’s driven much more by technical market factors than by any fundamental changes.” However, he said that further capital flows into more cyclical sectors—and those sometimes sensitive to Fed interest rates, such as non-essential goods and services—will depend on whether oil prices and interest rates remain near current levels.

The sell-off among the largest semiconductor manufacturers shows just how quickly investor sentiment has shifted regarding one of the most popular market bets in recent months, according to Bloomberg. This also creates a challenging backdrop ahead of earnings reports from a number of tech giants. Microsoft and Meta Platforms are set to report their results on Wednesday, while Apple and Amazon will do so on Thursday.

“We maintain a positive outlook on the semiconductor sector due to sustained demand for artificial intelligence solutions. However, we believe that the recent divergence in performance within the sector is in line with our assessment: investors can participate in the market’s continued growth not only through a narrow range of AI-related stocks,” — Bloomberg quotes UBS Chief Investment Officer Ulrike Hoffmann-Burchardi as saying.

This article was AI-translated and verified by a human editor