US Stocks Diverge, Philadelphia Semiconductor Index Slumps 4%: Micron Loses Trillion-Dollar Market Value, Market Expectations for Semiconductor Sector Too High, Short-Term Trading Enters Phase of Overextended Expectations

TradingKey - On July 15, Eastern Time, the three major US stock indexes diverged, with only the Dow Jones rising, while the S&P 500 and the Nasdaq Composite Index stumbled, and the Philadelphia Semiconductor Index plunged over 4%, with all 30 of its constituents falling.

As of press time, the Dow Jones Industrial Average rose 0.17% to 52,745.56 points; the Nasdaq Composite Index fell 0.84% to 26,048.62 points; and the S&P 500 Index fell 0.23% to 7,554.93 points.

Source: FutuBull

From a sector perspective, chip and memory stocks extended yesterday's losses. SanDisk ( SNDK) fell 10.80%, SK Hynix ( SKHY) fell 8.21%, Micron Technology ( MU) fell 6.00%, dropping below the $1 trillion market cap threshold; Corning ( GLW) fell 9.90%, Marvell Technology ( MRVL) fell 8.12%.

Meanwhile, the Mag 7 turned positive, with Apple ( AAPL) rising 1.31%, continuing to hit new highs; Microsoft ( MSFT) rising 1.08%, Amazon ( AMZN) rising 0.4%, Google ( GOOGL) rising 0.36%. In addition, UnitedHealth (UNH) saw its shares rise on better-than-expected quarterly profit, supporting the gains in the Dow Jones. Data showed that the company's Q2 revenue reached $112 billion, up 0.3% year-on-year, beating expectations by $1.14 billion; adjusted earnings per share were $6.38, beating expectations by $1.46.

Market analysts believe the catalyst for the divergence in the semiconductor sector was TSMC's mixed earnings report released today. While TSMC's Q2 results themselves beat expectations, the company significantly raised its full-year capital expenditure guidance to $60 billion to $64 billion, up substantially from its previous range of $52 billion to $56 billion. This triggered market concerns over the pace of capacity expansion and capital return cycles in the industry, dragging down the overall sector.

The reason the Mag 7 regained favor with capital is that investors are rotating from high to low. Capital is switching from the semiconductor sector, where expectations are high, to cloud computing giants with relatively reasonable valuations, thereby hedging against the risk of 'selling the news'.

According to FactSet data, the market currently expects Q2 profits for the 'Semiconductor & Semiconductor Equipment' industry to grow 131% year-on-year, with revenue growing 75%. If the chip industry is excluded, the expected profit growth rate for the information technology sector would drop from 63.3% to 25.8%. A significant portion of the entire tech sector's earnings growth is being pinned on semiconductors.

ASML, which released its earnings recently, ( ASML) is a prime example; TSMC, which reported its earnings today, ( TSM) is also a classic case study.

Although both companies reported strong results themselves, they failed to reverse the decline in their respective sectors. This indicates that the short-term trading structure has entered a phase where 'expectations have been overdrawn.'