Nasdaq just experienced its worst July in 22 years.
The Nasdaq 100 index fell 6.6% in July, with a cumulative decline of 12% over 56 days.
The semiconductor sector led the decline. SOXX dropped 22.1%, marking its worst month since December 2002.
Background of the previous four sell-offs:
- 2022 rate hikes: -36% within 330 days
- 2025 tariff war: -26% within 45 days
- 2026 US-Iran war: -13% within 61 days
- Now: -12% within 56 days
This time it is the fastest, and there is no single event driving it behind the scenes.
Investors are worried about AI valuations, crowded positions, and competition from China.
But they are not selling off their trades. Goldman Sachs stated that investors added nearly $13 billion to SMH and SOXX during the downturn.
Leveraged and inverse ETFs absorbed over $6 billion, but total assets dropped from approximately $210 billion in June to below $150 billion. Losses exceeded inflows.
Funds are rotating, not flowing out. The equal-weight S&P 500 index rose 1.1% in July, and one major software ETF gained 4.4%.
This sell-off has eliminated billions in valuations and leverage. It has not eliminated confidence in AI.
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