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Under the joint attack of Trump and Biden, chip stocks exploded.

On Wednesday, ASML, a European lithography giant, saw its share price plummet by 10%, followed by Nvidia and AMD, which fell by 6% and 10%, respectively. The collapse of chip stocks also dragged down the Nasdaq index by 2.7%, setting a record high.The biggest single-day drop since December 2022.Only Intel and GlobalFoundries bucked the trend and saw their share prices rise.

The collective plunge in chip stocks also caused the Philadelphia Semiconductor Index, which tracks chip stocks such as Nvidia and TSMC, to plummet, with the market value of chip stocks shrinking by US$496 billion.

Style rotation continues, large-cap technology stocks -> small-cap stocks

Steve Sosnick, chief market strategist at Interactive Brokers, said:Chip stocks are taking a hit from both Biden and Trump, if high-quality large-cap stocks other than large-cap technology stocks also plummet, then investors will really have nowhere to hide.

Ajay Rajadhyaksha, head of global research at Barclays, said Wednesday's chip stock decline reflects investors' heightened concern about geopolitical risks, and Trump's chances of winning the U.S. election have greatly increased. And now the style rotation of U.S. stocks is very aggressive, continuing to shift from large-cap technology stocks to small-cap stocks.

Some analysts pointed out that chip stocks such as Intel and GlobalFoundries were able to rise against the trend mainly because they are sectors that are in line with Trump's "Make America Great" rhetoric - they have large-scale manufacturing capabilities in the United States.

Baird's technology strategist Ted Mortonson noted that the hot money surrounding artificial intelligence has driven a sharp rise in the share prices of companies such as Microsoft and Nvidia this year. However, in recent weeks, Wall Street has begun to worry about how long it will take for big tech companies to see a return on the tens of billions of dollars they have invested in artificial intelligence infrastructure.

ASML CEO Christophe Fouquet said on Wednesday that he believes the chip industry will recover next year driven by artificial intelligence, but he also admitted that there is still "a lot of uncertainty" about the speed and form of the chip industry's recovery.

What will happen to the U.S. stock market in the future?

In the first half of the year, the seven technology giants in the U.S. stock market drove the market higher, and their own valuations also rose. Now that they have all pulled back, can the U.S. stock market continue to rise without their driving force?

Goldman Sachs strategist Scott Rubner said that he would not buy the bottom of the US stock market at this time, as the correction of the US stock market has just begun and the S&P 500 index will continue to fall in the future. Because according to data statistics since 1928, the market changes on July 17 mean that the returns of the stock index will turn around, especially in the following August, which is usually the month with the heaviest outflow of funds from passive management funds and mutual funds.

Rubner said that after a string of gains, U.S. stocks are at risk of weak inflows and vulnerable to negative headlines:

No inflows from passive or mutual funds are expected in August, as the funds have already been deployed into the third quarter. The huge household funds have just deployed the second largest passive inflows in history, second only to 2021. As for the slowdown in passive inflows, Rubner observed that the imbalance selling at the market close reached $8 billion in the past three days.
As for systematic funds such as CTAs that trade with the trend, their positions have reached the maximum limit, indicating that there is no room for further buying.

BTIG analyst Jonathan Krinsky expressed a similar view.Believe that the US stock market is approaching the end of a typical bull market, judging from survey and trading indicators, market sentiment is still very high.

Krinsky added: "While the style shift from large-cap tech stocks to cyclical stocks and small-cap stocks is encouraging, it seems a bit far-fetched to have occurred in such a short period of time. Even if this style shift lasts longer, new leaders may not emerge until the U.S. stock market corrects further."