Chip Rally Fades Late as Profit-Taking Hits Mega-Caps, Broader Leadership Persists

U.S. equities finished higher in a volatile session, though late-day profit-taking—particularly in mega-cap technology—trimmed earlier gains. The S&P 500 and Nasdaq Composite both rose 0.3% but closed well below their intraday highs, while broader participation helped the Dow Jones Industrial Average outperform with a 0.6% advance, leaving it closer to its session peak.

Semiconductor stocks were among the day’s biggest winners despite giving back a meaningful portion of early gains. A strong earnings report from Taiwan Semiconductor Manufacturing ignited an early surge across chipmakers and AI-related names. The company’s outlook for $52–$56 billion in capital spending in 2026 reinforced confidence in sustained AI-driven demand, powering a sharp morning rally.

The semiconductor index jumped as much as 3.9% before settling with a still-solid 1.8% gain, as selling pressure intensified into the afternoon. The broader technology sector followed a similar path, paring most of an early advance that had exceeded 1.5% to finish up just 0.5%. The pullback coincided with comments from Commerce Secretary Howard Lutnick suggesting that semiconductor firms without U.S. production could face steep tariffs, though the move also reflected natural profit-taking after a strong start to the year that had already left chip stocks sharply higher.

KLA Corp. stood out across the S&P 500, surging after multiple analyst upgrades and optimistic price targets. NVIDIA also remained a relative bright spot among mega-cap names, even as the mega-cap growth complex faded from earlier strength. The mega-cap growth ETF ended nearly flat after trading notably higher earlier in the session.

Weakness in the largest technology and communication services names weighed on some sectors late in the day. Consumer discretionary stocks held modest gains but finished well off their highs, while a late decline in Alphabet pushed communication services into negative territory.

Seven S&P 500 sectors closed higher overall. Utilities led defensives with a 1.0% gain, proving resilient to the afternoon sell-off. Cyclical sectors were mixed but generally constructive, with industrials among the top performers. Airline stocks rebounded sharply, recovering from earlier-week weakness tied to earnings-related volatility.

Financials also finished higher, supported by strong post-earnings moves in several major investment banks and asset managers. Those gains offered some relief after a difficult week for the sector, though financial stocks also faded from their best levels by the close.

Energy was the weakest sector, falling 0.9% as oil prices continued to slide amid easing geopolitical tensions between the U.S. and Iran. Crude futures dropped 4.5% to settle below $60 per barrel, extending the recent pullback in energy markets.

Health care also lagged, pressured by stock-specific developments. Shares of a major pharmaceutical name fell after a regulatory decision was delayed, while weakness in medical device stocks followed a large acquisition announcement that weighed on the acquirer’s shares.

Smaller-cap stocks again outperformed. Both the Russell 2000 and the S&P MidCap 400 finished solidly higher despite surrendering some early strength, continuing a trend that has defined trading in early 2026.

Overall, the session reinforced a key theme of the year so far: leadership is broadening as mega-cap stocks struggle to maintain momentum. While large-cap growth has lagged, small- and mid-cap indices and equal-weight benchmarks continue to outperform, reflecting investor optimism around cyclical sectors and a resilient economic outlook for 2026—even as expectations for near-term Fed rate cuts remain pushed further into the future.

Our FTinvest 11 model portfolio advanced 0.47% to close at 968.97, marking its third consecutive all-time high. The portfolio’s steady upward climb continues to reflect strong investor confidence and the effectiveness of its value-driven strategy.

As the new year unfolds, FTinvest 11 has demonstrated exceptional strength, consistently outperforming broader market trends. With fundamentals remaining at the core of its approach, the portfolio enters the second half of January with sustained momentum and a growing performance edge.