Semiconductor Selloff Drags Major Indexes Lower Despite Resilient Market Breadth

Stocks closed lower on Tuesday as a sharp selloff across semiconductor shares weighed heavily on the major averages, masking what was otherwise a relatively balanced performance beneath the surface. The S&P 500 fell 1.4%, while the Nasdaq Composite dropped 2.2%. The Dow Jones Industrial Average proved far more resilient, slipping just 0.1% after spending much of the session near unchanged levels.

The divergence beneath the headlines was notable. The S&P 500 Equal Weight Index declined only 0.4%, significantly outperforming the market-cap-weighted benchmark and highlighting the concentrated nature of the day’s weakness.

The semiconductor sector was at the center of the selling pressure. The Philadelphia Semiconductor Index plunged 7.9% in its worst session in months, driven largely by weakness across memory, equipment, and analog chipmakers.

The move did not stem from a single company-specific catalyst. Instead, investors reacted to a nearly 10% overnight decline in South Korea’s Kospi Index, where major semiconductor manufacturers SK Hynix and Samsung Electronics suffered steep losses. Sentiment was further pressured after Bloomberg reported that South Korea’s top financial regulator expressed regret over approving several leveraged exchange-traded funds tied to the two companies.

The weakness quickly spread across the U.S. semiconductor industry. Sandisk and Micron each fell more than 13%, while Lam Research and onsemi posted double-digit declines. The broad selloff drove the information technology sector down 3.7%, making it by far the worst-performing sector in the S&P 500.

Large-cap growth stocks also came under pressure, with the Vanguard Mega Cap Growth ETF losing 2.1%. However, performance within the technology space was far from uniform.

IBM stood out as the top-performing Dow component, rising 5.0% after receiving an upgrade from JPMorgan to Overweight from Neutral. Microsoft also rebounded from Monday’s weakness, gaining 1.8% as software stocks generally held up better than semiconductor names.

SpaceX provided another notable exception to the broader technology weakness. Shares gained 0.9%, snapping a three-session losing streak after reports indicated the company is seeking to raise $25 billion through a bond offering. Demand appeared exceptionally strong, with indications that orders approached $90 billion. The recovery was particularly noteworthy after shares briefly traded below their $150 IPO price earlier in the session.

The semiconductor selloff also spilled into adjacent AI infrastructure themes. Electrical equipment companies closely tied to data-center spending came under pressure, with GE Vernova and Vertiv posting sizable losses. That weakness helped pull the industrials sector down 2.0%.

Consumer discretionary stocks also struggled. Tesla fell 5.8%, while Carnival dropped nearly 5% after issuing downside guidance alongside its earnings report. The sector finished lower by 0.9%.

Away from technology and growth-oriented areas, market action was considerably more constructive. Six of the eleven S&P 500 sectors finished higher, led by consumer staples, which gained 1.8% as investors rotated into more defensive areas of the market.

Health care rose 1.4%, while utilities added 0.8%. Real estate also climbed 1.4%, extending its recent streak of outperformance and reinforcing its position as the strongest-performing S&P 500 sector so far this week.

The shift toward defensive positioning coincided with a rise in market volatility. The CBOE Volatility Index climbed 12.4% to 19.43. Even so, lower oil prices and declining Treasury yields continued to provide support for several interest-rate-sensitive groups.

Outside the large-cap benchmarks, the Russell 2000 fell 1.0% after recently reaching record highs, while the S&P MidCap 400 also declined 1.0%.

Despite the steep losses in semiconductors, the broader market showed few signs of systemic stress. Market breadth remained relatively healthy, with more than half of the S&P 500 sectors finishing higher and the equal-weighted index significantly outperforming the capitalization-weighted benchmark.

Attention now turns to Micron’s earnings report after Wednesday’s close. Given the semiconductor sector’s central role in recent market leadership, the results could play a pivotal role in determining whether investors once again view weakness across chip stocks as a buying opportunity or the start of a more prolonged correction.

Our FTinvest 11 model portfolio surged 3.89% to close at 1,027.69, marking its second consecutive day of strong gains and reclaiming the 1,000 level. The portfolio has now recovered substantially from last week’s correction, reducing the drawdown from its all-time high of 1,078.93 to approximately 4.8%.

FTinvest 11 is now up approximately +10.72% year-to-date, returning to double-digit gains for 2026. As with yesterday’s advance, the majority of today’s gain was driven by the continued rebound of the portfolio component that had previously come under severe pressure due to liquidity concerns. With those issues now largely resolved, the stock has recovered sharply, reversing a meaningful portion of the losses that weighed on portfolio performance earlier this month. The swift recovery highlights both the impact that company-specific events can have on short-term results and the potential for rapid revaluation once uncertainty subsides.