U.S. stocks cool as chip rally faces second-half test

Highlights

Dow futures fell after a strong first half for U.S. stocks.
The Dow posted its best first-half gain since 2021.
AI and chip stocks remain the market’s main driver.
Investors are watching Fed signals, inflation, and fresh data.

AI trade cools after powering market gains

Dow Jones Industrial Average and S&P 500 futures each fell 0.24%, while Nasdaq 100 futures declined 0.39%. The pullback followed solid gains on Tuesday, when the Dow Jones Industrial Average rose 0.26%, the S&P 500 advanced 0.79%, and the Nasdaq Composite climbed 1.52%, CNBC reported.

For the first six months of 2026, the Dow climbed 8.9%, its best first-half performance since 2021. The S&P 500 rose 9.6%, while the Nasdaq gained 12.8%. The small-cap Russell 2000 surged nearly 22%, marking its strongest first-half performance since 1991.

A major driver was the surge in semiconductor and AI-related stocks. Chip shares helped lift the market Tuesday, extending a rally that has made the sector one of the clearest leaders of the current bull market. Micron, Intel, and Advanced Micro Devices added about $2 trillion in combined market value during the second quarter, underlining how much investor confidence has been tied to AI infrastructure.

Still, some market watchers are becoming more cautious. Paul Hickey, co-founder of Bespoke Investment Group, said that he remains positive on semiconductors over the long term but would not chase the sector aggressively at current levels. His concern is that the group has become extended after a long run of gains.

Rates, currency pressure, and data return to focus

The pullback also came as investors watched global currency markets. The Japanese yen weakened to 162.28 per dollar, a fresh 40-year low, keeping traders alert for possible intervention from Japanese authorities.

Attention is also shifting back to monetary policy. Federal Reserve Chairman Kevin Warsh is scheduled to speak at the European Central Bank Forum on Central Banking in Sintra, Portugal. Traders will listen for any sign that the Fed could raise interest rates again as inflation remains a concern.

Economic data due Wednesday may shape that debate. Investors are watching June’s ADP employment survey, the ISM manufacturing report, and final global manufacturing PMI readings.

Why the second half starts with less room for error

The early drop in futures does not erase the market’s first-half gains, but it shows how sensitive sentiment has become. With the Dow up 8.9%, the Nasdaq up 12.8%, and the Russell 2000 up nearly 22%, a lot of optimism is already priced in.

If earnings, AI spending, and economic data stay firm, the rally could broaden beyond chip stocks. But if inflation stays sticky or rate expectations move higher, the same momentum that pushed stocks up could leave the market exposed to a sharper correction.

We have previously highlighted that Mag 7 loses $2.3 trillion as investors shift into chip stocks.

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