U.S. equities closed with mixed results on Monday, as the Dow Jones Industrial Average posted a solid gain that helped counterbalance sharp declines in the AI chip segment. The market showed signs of rotation, with investors shifting away from megacap technology names into other sectors.
According to preliminary figures, the Dow Jones Industrial Average (INDEXDJX:.DJI) rose 0.51% to 52,209.69. The S&P 500 (INDEXSP:.INX) edged up just 0.02%, while the Nasdaq Composite (INDEXNASDAQ:.IXIC) slipped 0.18%. The divergence between the cap-weighted S&P and the equal-weight version highlighted the breadth of the rally. The S&P 500 Equal Weight Index advanced 0.72%, and the Russell 2000 (INDEXRUSSELL:RUT) increased 0.65%.
Over the past two sessions, the gap between the equal-weight index and the cap-weighted S&P has widened to 1.43 percentage points. The equal-weight index rose 1.50% from Thursday's close, while the cap-weighted S&P posted a mere 0.07% increase. This divergence suggests that Monday's moves were driven by rotation rather than a broad risk-off sentiment. "Today represents a continuation of the rotational market that we've seen," said Bill Merz, head of capital-markets research at U.S. Bank Asset Management Group. Advancing stocks led decliners by a ratio of 1.6-to-one during the session, according to Reuters.
Chip stocks were the main drag on the market. Nvidia (NASDAQ:NVDA) slipped 4.9% in late trading, while Advanced Micro Devices (NASDAQ:AMD) dropped 7.3%. The PHLX Semiconductor Index ended the session down 2.23% at 11,554.88, marking a 21.2% decline from its June 22 peak. The sell-off was exacerbated by news from China: CXMT Corp (SHA:688825) opened strongly on its Shanghai debut, and reports indicated that China has begun producing local deep-ultraviolet chip tools, signaling stiffer competition for U.S. suppliers.
Other sectors moved in the opposite direction. Consumer staples climbed 1.7%, and health care rose nearly 1%. Brent crude fell about 8% during the session, easing inflation concerns but failing to halt the decline in chip stocks. The move comes after a challenging week for major indexes: the S&P slipped 0.6%, the Dow lost 0.4%, the Nasdaq dropped 2.1%, and the Russell 2000 fell 1.1%. The Nasdaq's decline was more than three times greater than the S&P's.
The Federal Reserve will begin a two-day meeting on Tuesday, with an announcement scheduled for Wednesday at 2 p.m. EDT. Rate futures indicate a 62% probability that rates will remain unchanged, and a 38% likelihood of a 0.25 percentage point hike. Preliminary GDP results for the second quarter and June's personal income statistics, including the PCE inflation numbers, will be released Thursday at 8:30 a.m. EDT.
Upcoming corporate earnings from Microsoft (NASDAQ:MSFT), Amazon.com (NASDAQ:AMZN), Meta Platforms (NASDAQ:META), and Apple (NASDAQ:AAPL) will be closely watched to see if the rotation maintains momentum. Data from London Stock Exchange Group (LON:LSEG) shows that S&P earnings growth is projected at 39%, with a significant portion coming from AI-related stocks. The equal-weight index has become a clearer indicator of market breadth. Additional advances could help absorb another megacap pullback, while a decline would again highlight the concentration within the index.
Risks to the rotation include an unexpected Fed rate increase, disappointing megacap forecasts, or fresh conflict in the Middle East. The S&P 500 is valued at close to 20 times projected earnings, offering little buffer against further rate or energy shocks.
