Chips crash but the market holds — narrow decline, broad advance

Chip weakness pushed the Nasdaq -0.7% on the 1st (local time), but the index decline stayed shallow (S&P 500 -0.2%, Dow flat)

• Only tech fell hard (-2.6%); the rest held up, with advancers at 56.8% — the decline was confined to semiconductors

• Oil -2.4%, and the VIX ticked only slightly higher — a calm tape overall

• WATCH: Employment Situation/NFP (7/2)

Chips reverse after the Q2 rally

After a huge Q2 rally (Micron, Intel and AMD added $2 trillion in value), profit-taking piled in and semiconductors sold off across the board

• Micron -10.6%, Intel -9.0%, Marvell -8.7%, TSMC -7.0%, AMD -6.9%; chip sector -6.4%

• The exact opposite of yesterday's +4.3% surge — a one-day valuation reset

• The question: demand intact with only valuation cooling, or a demand-slowdown signal

Rotation from chips into software and financials

Money out of chips moved into software, communications and financials

• Software led (CrowdStrike +10.2%, Palantir +7.8%) and communications strengthened (Meta +8.8%, XLC +2.4%)

• Fed's Warsh saying "prices are too high" lifted Treasury yields → buying into financials (+2.2%)