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

On Wednesday, the stock prices of European lithography machine giants$ASML Holding (ASML.US)$fell by 10%, and then the US stock prices$NVIDIA (NVDA.US)$fell by 6%, causing a 10% drop in chip stocks and dragging down the Nasdaq index by 2.7%, the largest single-day drop since December 2022.$Advanced Micro Devices (AMD.US)$only the stock price of$Intel (INTC.US)$And.$GlobalFoundries (GFS.US)$rose against the trend.

This collective plunge of chip stocks has also resulted in a $496 billion contraction in the market cap of companies such as Nvidia and$Taiwan Semiconductor (TSM.US)$.$PHLX Semiconductor Index (.SOX.US)$The market value of chip stocks plummeted by 496 billion US dollars.

Barclays global research director Ajay Rajadhyaksha said that the chip stocks' decline on Wednesday reflects investors' heightened concern about geopolitical risk. There has been a dramatic shift towards small cap stocks from large cap tech stocks, and this rotation is likely to continue.

Barclays' global research head Ajay Rajadhyaksha said that Wednesday's decline in chip stocks reflects investors' high concern about geopolitical risks, and the possibility that Trump will win the US presidential election has greatly increased. And now the style rotation of the US stock market is very aggressive, continuing to shift from large-cap technology stocks to small-cap stocks.

Analysis suggests that chip stocks with strong manufacturing capabilities, such as Intel and GlobalFoundries, have been able to rise against the trend because they belong to sectors that align with Trump's "Make America Great Again" rhetoric, and they possess certain industrial manufacturing capabilities.

Ted Mortonson, technology strategist at Baird, pointed out that the hot money revolving around artificial intelligence has driven up the stock prices of companies such as Nvidia this year. However, in recent weeks, Wall Street has become increasingly concerned about the use of billions of dollars by major tech companies to invest in AI infrastructure and when they will see a return on their investments.$Microsoft (MSFT.US)$And the sharp rise in stock prices of companies like Nvidia. However, in recent weeks, Wall Street has begun to worry about how long it will take for big tech companies' investment of billions of dollars in AI infrastructure to pay off.

Christophe Fouquet, CEO of Asml Holding, said on Wednesday that he believes the chip industry will rebound under the impetus of AI next year. However, he also admitted that there are "a lot of uncertainties" about the pace and form of the chip industry's recovery.

What will happen to the US stock market in the future?

In the first half of the year, the magnificent 7 tech giants of the US stock market drove the market higher and their valuations soared. Now that they are experiencing a pullback, can the US stock market continue to rise without their support?

Scott Rubner, a strategist at Goldman Sachs, said it is not time to buy into the US stock market yet and that the pullback has only just begun. Data from 1928 onwards shows that market fluctuations on July 17 mark a turning point in stock market returns, especially in August, which is typically the month in which passive and mutual funds see the most outflows.$S&P 500 Index (.SPX.US)$It will continue to fall in the future. Because according to statistics since 1928, the market changes on July 17th mean that the return of the stock index will have a turning point, especially August, which is usually the month with the most outflows of passive funds and mutual fund flows.

Rubner said that after a series of gains, the US stock market is at risk of experiencing weak fund inflows and is vulnerable to negative news:

Due to the related funds already being deployed in the third quarter, it is expected that there will be no inflow of funds from passive funds or mutual funds in August. The massive family funds, just with the second-largest passive fund inflow in history, exceeded only by 2021. As for the argument of the slowdown in passive fund inflows, Rubner observed that the closing ask imbalance reached $8 billion in the past three days.

As for trend-trading CTA systematic funds, their position has reached the maximum limit, indicating no further room for buying.

BTIG analyst Jonathan Krinsky also expressed a similar view, believing that the US stock market is approaching a typical bull market finale. From surveys and trading indicators, the current market sentiment remains very high. Krinsky added: "Although the style shift from large tech stocks to cyclical stocks and small caps is encouraging, such a shift in such a short time seems somewhat far-fetched. Even if this style shift can last longer, new leaders may not emerge until further deep corrections in the US market."

Krinsky added: "Although the style shift from large tech stocks to cyclical stocks and small caps is encouraging, such a shift in such a short time seems somewhat far-fetched. Even if this style shift can last longer, new leaders may not emerge until further deep corrections in the US market."

Editor/Somer