All three major U.S. indexes posted weekly losses, while investors grew increasingly cautious about the sustainability of the recent AI spending boom.
Semiconductor Stocks Retreat into Bear Market Territory
The Philadelphia SE Semiconductor Index, a primary gauge for the chip sector, closed 20.2% below its June 22 record high, confirming the index entered a bear market on that date. The index recorded its steepest weekly loss in more than a year and has plummeted over 18% during July alone.
Despite the recent volatility, the index remains up nearly 65% year-to-date, a sharp contrast to the S&P 500’s more modest gain of nearly 9% over the same period. Market analysts suggest the pullback represents a cooling period for a sector that many believe had outpaced its own fundamentals.
Market Indexes and Broad Risk-Off Sentiment
The market-wide decline affected nearly all major benchmarks on Friday. The Dow Jones Industrial Average fell 406.55 points, or 0.77%, to 52,146.42. The S&P 500 lost 76.08 points, or 1.01%, closing at 7,457.69, while the Nasdaq Composite dropped 361.70 points, or 1.40%, to 25,520.24.
Declining issues significantly outnumbered advancers across major exchanges. On the New York Stock Exchange, declining issues outnumbered advancers by a 1.94-to-1 ratio, while the Nasdaq recorded a 1.76-to-1 ratio. Trading volume remained below the recent average, with 17.55 billion shares changing hands, compared to the 20.87 billion-share average seen over the previous 20 trading sessions.
Performance of AI-Linked Megacaps
The Magnificent Seven
group of AI-related technology stocks saw broad-based weakness. Alphabet and Meta were among the hardest hit, falling 3.2% and 2.7% respectively. Apple was the notable exception, avoiding the downward pressure that affected its peers.
This cooling in the technology sector comes as some active managers have begun to scale back exposure to artificial intelligence, according to a TradingView. Investors are increasingly positioning for a potential slowdown in the nearly trillion-dollar AI spending boom that has characterized the market for much of 2026.
Corporate Earnings and Sector Shifts
While the tech sector struggled, other industries provided a mixed picture for investors. Netflix shares tumbled 7.3% following a weaker-than-expected earnings forecast that raised concerns about the company’s long-term content growth. Meanwhile, Intuitive Surgical slid 14.2% after the medical device maker signaled that insurance-plan changes might be delaying patient procedures.
Energy stocks stood out as the day’s sole gainers, buoyed by rising crude oil prices amid escalating tensions in the Iran war. In the corporate merger space, Uber Technologies dropped 2.1% after announcing a nearly $15 billion deal to acquire Germany’s Delivery Hero.
Despite the broader market slide, early second-quarter earnings reports have been generally positive. Of the 49 S&P 500 companies that have reported, 90% have delivered results exceeding analyst expectations. Year-on-year earnings growth for the S&P 500 is now projected at 26.0%, a significant increase from the 19.2% expectation set on April 1.
Economic Indicators and Future Market Outlook
The economic backdrop remains nuanced. Consumer sentiment reached a five-month high in July, yet industrial output saw only a marginal increase of 0.1%. Additionally, housing data showed a dip in both single-family starts and building permits.
As the earnings season continues, the question remains whether the robust performance of the broader banking and corporate sectors can offset the chip fatigue currently weighing on the technology-heavy Nasdaq. With more sectors scheduled to report in the coming weeks, investors are waiting to see if the market’s initial optimism regarding earnings can withstand the pressure of a shifting risk-off environment.
