Semiconductors Wobble, Records Hold: Why Volatility and New Highs Can Coexist

Semiconductors Wobble, Records Hold: Why Volatility and New Highs Can Coexist

For the week ended August 21st, U.S. equities pulled back broadly: the S&P 500 fell 1.39% to 7,674, the Nasdaq dropped 2.02% to 26,180, and the Dow slipped 0.78% to 53,277. Small caps underperformed as well, with the Russell 2000 down 1.60%.

Energy Leads, Tech Lags

Sector performance reflected a rotation away from richly valued growth names: Health Care led for the week, up 4.3%, followed by Energy (+2.9%) and Materials (+2.3%), while Utilities (-3.6%), Industrials (-3.4%), and Technology (-3.2%) lagged. Growth stocks broadly underperformed value, with the Russell 1000 Growth down 2.31% for the week versus a 0.50% decline for the Russell 1000 Value.

Inflation Holds Steady

On the economic data front, July housing starts fell 12.4% month-over-month and pending home sales declined 2.3% month-over-month, both pointing to continued softness in housing activity. Treasury yields moved higher across the curve, with the 10-year finishing at 4.74% (up from 4.68% the prior week) and the 2-year at 4.24%. The broad U.S. Aggregate bond index slipped 0.10% for the week as yields rose.

AI Concentration Grows

J.P. Morgan’s research this week focused on renewed volatility in semiconductor stocks, which have fallen 20.3% since their June 22 peak. History suggests this kind of swing is not unusual: since 1995, the PHLX Semiconductor Index has averaged a 29.8% intra-year decline yet still finished the year higher in 20 of the past 31 years. Despite falling as much as 28.6% from its highs in 2026, the index remains up 66% year-to-date, following three consecutive years of double-digit returns. J.P. Morgan notes the underlying AI investment cycle remains supportive, with hyperscalers expected to invest almost $800 billion in capex this year and more than $1 trillion in 2027, spending that should continue to support the “picks and shovels” of the AI buildout: semiconductors, memory, networking, and data-center infrastructure.

Midterms and Markets

This week’s volatility in a single, concentrated corner of the market is a useful reminder for the broader portfolio as well. With the S&P 500, Nasdaq, and Dow all still sitting on double-digit total returns this year, a natural question is whether to wait for a better entry point before putting new money to work, or before making changes to an existing plan. History suggests that approach is often counterproductive.

Looking Ahead

Looking ahead, investors will watch global flash PMIs and the second estimate of second-quarter GDP for further signals on the health of the economy.

As Always

I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.