Software Strength Offsets Chip Selloff as Market Rotation Keeps Indexes Near Record Levels

The major averages finished little changed on Friday as strength across software stocks and several other areas of the market helped offset another sharp decline in semiconductor shares. The S&P 500 slipped 0.1%, the Nasdaq Composite lost 0.2%, and the Dow Jones Industrial Average also edged 0.1% lower, reflecting a session marked by sector rotation rather than broad-based risk aversion.

Technology once again told two very different stories. Semiconductor stocks remained under heavy pressure after The New York Times reported that OpenAI may postpone its planned initial public offering until 2027 following SpaceX’s underwhelming post-IPO performance. The report prompted investors to continue trimming exposure to AI infrastructure names, extending the group’s recent volatility.

The Philadelphia Semiconductor Index dropped 5.3%, with memory stocks surrendering a portion of Thursday’s post-earnings rally. Micron fell 6.7%, while Sandisk declined 10.5% as investors locked in profits after the previous session’s surge.

Company-specific news added to the weakness. ON Semiconductor plunged 23.7%, making it the worst-performing stock in the S&P 500, after announcing a $7 billion all-stock acquisition of Synaptics. Investors questioned the near-term dilution associated with the transaction despite its long-term strategic rationale.

Outside the semiconductor space, however, technology performance was considerably more encouraging. Software stocks emerged as one of the market’s strongest groups, led by a nearly 10% gain in ServiceNow after the company delivered upbeat corporate developments. The iShares Expanded Tech-Software Sector ETF advanced 4.1%, highlighting continued investor interest in software despite ongoing volatility across AI hardware.

Several mega-cap technology names also recovered from Thursday’s losses. Apple gained 3.1%, while Microsoft rallied 5.7%, helping the Vanguard Mega Cap Growth ETF finish essentially unchanged despite the information technology sector declining 1.1%.

Industrials also underperformed, falling 1.5%, as electrical equipment manufacturers continued to trade in sympathy with semiconductor stocks. FedEx Freight added to the sector’s weakness after investors reacted cautiously to the company’s first earnings report since becoming an independent public company.

Away from technology, market participation remained constructive. Six of the eleven S&P 500 sectors finished higher, led by health care, which climbed an impressive 3.2%. Eli Lilly surged 7.0%, while Moderna jumped 12.6% to become the best-performing stock in the S&P 500 after unveiling encouraging research and development updates during its Science Day event.

Defensive sectors also attracted buying interest. Consumer staples gained 1.0%, utilities rose 0.8%, and consumer discretionary stocks advanced 1.6%, supported by strength across several large consumer-focused companies.

Performance outside the large-cap indexes was similarly subdued. The Russell 2000 edged up 0.1%, while the S&P MidCap 400 slipped 0.2%, suggesting that rotational buying was less pronounced than earlier in the week.

On the monetary policy front, Minneapolis Fed President Neel Kashkari indicated in a CNBC interview that he currently anticipates one interest rate hike in 2026, while emphasizing that future policy decisions will remain dependent on incoming economic data.

Overall, Friday’s session reinforced the increasingly selective nature of today’s market. Rather than treating technology as a single theme, investors continued to differentiate between its subsectors. Persistent selling in AI infrastructure and semiconductor stocks contrasted with renewed strength in software and select mega-cap technology companies, while leadership from health care and other defensive sectors helped keep the broader market remarkably stable despite another significant decline in chipmakers.

Our FTInvest 11 model portfolio fell 4.78% to close at 981.66, erasing much of this week’s recovery and dropping back below the 1,000 level. The sharp decline pushed the portfolio to approximately 9.0% below its all-time high of 1,078.93, as renewed selling pressure reversed the strong momentum seen over the previous several sessions.

FTInvest 11 remains up approximately +5.76% year-to-date, preserving a positive return despite the heightened volatility experienced throughout June. After recovering strongly earlier in the week, today’s move serves as a reminder that market sentiment can shift quickly, particularly following periods of rapid gains. While the near-term outlook has become more uncertain, the portfolio continues to follow its disciplined, value-driven investment strategy with a focus on long-term capital appreciation rather than short-term market swings.