Third Quarter Begins with Rotation Beneath the Surface as Semiconductor Rally Takes a Breather

Stocks opened the third quarter with a relatively subdued session following an exceptionally strong second quarter for U.S. equities. The S&P 500 slipped 0.2%, the Nasdaq Composite declined 0.7%, and the Dow Jones Industrial Average finished essentially unchanged after reaching another intraday record high. Despite a sharp selloff in semiconductor stocks, the major averages proved remarkably resilient as strength across software, several mega-cap technology companies, and other sectors helped offset the weakness.

Semiconductor shares paused after leading the market higher over the previous two sessions. The Philadelphia Semiconductor Index fell 6.3%, with broad profit-taking spreading across memory manufacturers, chip equipment companies, and AI infrastructure names. The pullback appeared to be driven primarily by investors locking in gains rather than any material deterioration in industry fundamentals.

Corning and KLA Corporation ranked among the S&P 500’s weakest performers, reflecting the broad-based nature of the selling across semiconductor-related stocks.

The broader technology sector, however, displayed far greater resilience. Although the information technology sector finished down 1.8%, it recovered significantly from its intraday lows as software stocks continued to attract buyers. The iShares Expanded Tech-Software ETF advanced 3.0%, while Apple gained 1.7% and Microsoft climbed 3.0%, helping stabilize the sector.

Palantir Technologies was another standout, surging 7.8% after President Trump’s latest financial disclosure revealed a personal investment in the company. The Vanguard Mega Cap Growth ETF finished essentially unchanged, highlighting the resilience of the market’s largest growth stocks despite the sharp decline in semiconductor shares.

Communication services led all sectors with a 2.6% gain. Meta Platforms rallied nearly 9% after Bloomberg reported that the company plans to launch a cloud business offering AI computing infrastructure, reinforcing investor enthusiasm surrounding its expanding artificial intelligence strategy.

Consumer discretionary stocks also outperformed, rising 0.8%. Amazon and Tesla both finished higher, while NIKE gained nearly 5% after delivering better-than-expected quarterly results. Although management maintained a cautious near-term outlook, investors viewed the report as further evidence that the company’s turnaround efforts continue to gain traction.

Financial stocks also enjoyed a strong session, with the sector advancing 2.1%. FactSet climbed 6.7% after exceeding earnings expectations, while Coinbase Global and Robinhood Markets both posted solid gains alongside a rebound in Bitcoin prices.

Elsewhere, trading was more mixed. General Mills surged 8.5% after beating earnings expectations and issuing fiscal 2027 guidance that largely matched Wall Street forecasts. Nevertheless, the consumer staples sector still finished modestly lower as Walmart remained under pressure following reports of slowing comparable sales and the potential need for additional price reductions to clear excess inventory. Constellation Brands also slipped despite reporting better-than-expected earnings and reaffirming its full-year outlook.

Utilities and industrials both lagged the broader market. Caterpillar weighed on industrial stocks as shares pulled back nearly 7% after recently reaching record highs.

Energy shares also weakened as crude oil prices continued to retreat. WTI crude settled 1.2% lower after reports indicated the United States is working to discourage Iran from imposing shipping tolls through the Strait of Hormuz. Additional reports that oil traffic through the strategic waterway has recovered to roughly 10 million barrels per day further eased concerns about global supply disruptions.

Small- and mid-cap stocks also gave back early gains. The Russell 2000 finished down 0.4% after reaching another intraday record high, while the S&P MidCap 400 declined 0.8%.

Overall, Wednesday’s session suggested that investors remain comfortable rotating within the technology sector rather than broadly reducing equity exposure following the market’s powerful second-quarter advance. While semiconductor stocks experienced a meaningful bout of profit-taking, resilience across software, mega-cap technology, and several cyclical sectors helped keep the broader market on solid footing. The S&P 500 Equal Weight Index gained 0.2%, outperforming its capitalization-weighted counterpart and reinforcing the view that market participation remains healthy as leadership continues to evolve heading into the third quarter.

Our FTinvest 11 model portfolio advanced 0.43% to close at 986.71, extending yesterday’s rebound and continuing its recovery from the recent correction. Although the portfolio remains below the 1,000 level, it has now recovered a meaningful portion of the late-June decline and sits approximately 8.5% below its all-time high of 1,078.93.

FTinvest 11 is now up approximately +6.31% year-to-date, maintaining a solid positive return through the first trading day of July. While volatility remains elevated compared with earlier in the year, recent sessions suggest that selling pressure has eased. The portfolio continues to follow its disciplined, value-driven investment strategy, focusing on long-term capital appreciation while navigating short-term market fluctuations.