US futures are diverging heading into Thursday’s session. The S&P 500 and Dow 30 continue to set fresh record highs, while the Nasdaq 100 remains range-bound as weakness across technology and AI-related stocks holds it back.
That divergence is another clear indication of sector rotation taking place beneath the surface of the market.
Sandisk and Western Digital are both under pressure despite delivering strong results and forecasting revenue above expectations.
The response is another reminder that earnings beats alone are no longer enough when valuations and expectations have already moved so far ahead.
Western Digital and Sandisk entered the session having risen roughly 200% and 400% respectively this year, leaving little room for results that were merely strong rather than exceptional.
That does not necessarily undermine the longer-term semiconductor story. The continued build-out of AI infrastructure should support demand over time. However, the latest correction shows that even the strongest themes can become vulnerable when price, valuation and expectations become overstretched.
SpaceX provides a second source of uncertainty today as its first post-IPO lock-up expires. As many as 912 million shares held by employees and early investors, valued at roughly $116 billion, will become eligible for sale. That does not mean every share will reach the market, but the potential increase in supply could create further volatility after the stock fell sharply following its first results as a public company.
Nvidia remains one of the more resilient names within the AI space after Elon Musk confirmed that SpaceX plans to build its future AI infrastructure exclusively using Nvidia systems. The announcement reinforces Nvidia’s position at the centre of the AI build-out, even as other semiconductor and technology stocks struggle to meet increasingly demanding expectations.
Away from technology, the backdrop remains more constructive. Progress towards a possible agreement involving Iran and Oman could reduce pressure around the Strait of Hormuz, helping to keep oil prices and inflation concerns contained. That, in turn, could limit expectations for more aggressive monetary tightening and continue supporting areas of the market outside technology.
Expectations for the Federal Reserve’s September decision are now close to evenly divided between another hold and a rate increase. With Fed Chair Kevin Warsh offering little forward guidance, incoming economic data will carry greater weight in shaping expectations. Weekly jobless claims arrive today before Friday’s non-farm payrolls report, which should provide the clearest indication of whether the labour market remains strong enough to support further tightening.
Our focus remains on the strongest stocks in the strongest sectors. We are in no rush to chase technology names still working through the correction and the capex-discipline test. The longer-term AI story remains intact, but price must first confirm that leadership is returning before fresh risk is committed.
In the meantime, capital is continuing to rotate away from technology and into areas such as Industrials, Financials and Healthcare. That shift is helping to keep the broader market firm, even as parts of the Nasdaq remain under pressure, and reinforces the importance of following where strength is actually developing rather than remaining attached to the sectors that led the previous advance.
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