Strong Rotation Prevents Broad Weakness as SpaceX Joins the Nasdaq 100
The market looks tired on Monday morning, but there is some rebound in chip names.
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The first full week of the second half of 2026 starts Monday, and investors look tired after the Fourth of July holiday festivities. Russell 2000 futures are up slightly, gold is up 1.47% and oil is holding steady. The mood is modestly positive with no major overnight news developments.
The primary story recently is that rotation continues to be the theme that prevents broader market weakness. Last week produced two failed pre-holiday seasonal setups, a jobs report that missed by half, a hard hit to the chip sector, and an interesting short call by Michael Burry.
Despite all of that, the Dow Jones Industrial Average closed at an all-time high on Thursday. The rotation into industrials, financials, small-caps, and biotech absorbed the selling in the AI infrastructure names. That is a healthy action and undermines the bears’ view that disaster awaits.
AI and chip names may face some struggles, but this is a market that is going through a character shift rather than a broad correction.
Rotation Continues to Do the Heavy Lifting
The Dow looked strong through last week, even as the QQQ and the chip sector struggled. That is the pattern that has been in place for three weeks. The money is not leaving the market. It is moving from the extended names into the neglected ones. A poor jobs report eased some inflation worries and helped to push the rotational action along.
Biotechnology continues to lead the rotation. Abivax SA (ABVX), Revolution Medicines (RVMD), and Neurocrine Biosciences (NBIX) have all extended their moves Monday morning. Stock-specific catalysts are driving each name and the sector-level trend is providing the tailwind. The setup that was working two weeks ago continues to work despite some overbought technical conditions.
Chip names are bouncing Monday morning after Thursday’s damage. The question is whether the bounce is an opportunity for trapped longs to reduce exposure. The Burry shorts, the Korea capex commitment, Micron (MU) pricing pressure, and now the SpaceX (SPCX) inclusion in the Nasdaq 100 are still weighing on the group. There is significant pressure, and a one-day bounce does not resolve any of that.
The SpaceX Nasdaq 100 Inclusion Creates a Selling Event
SpaceX officially joins the Nasdaq 100 before trading Tuesday morning after Nasdaq’s decision to fast-track newly public mega-cap companies under new rules. Mutual funds and exchange-traded funds with a collective $800 billion in assets track the Nasdaq 100. Those funds have to buy SPCX after Monday’s close to be in position for Tuesday.
Buying of SPCX isn’t the interesting part. The interesting part is what has to be sold. The $800 billion in capital to buy SPCX does not come out of nowhere. It has to reallocate from the existing Nasdaq 100 constituents. The math means every existing name in the index gets sold in proportion to its weight to make room for the SPCX addition.
The mega-cap tech names carry the largest weights and therefore will absorb the largest share of the selling. The names that have been under pressure through the AI unwinding are the same names that will see the most pressure. There has likely been some front-running of this, which explains last week’s pressure, and that means that the rebalancing could be a good catalyst for a bounce when it unwinds.
Earnings Season
Q2 earnings season starts a week from Tuesday with the banks on July 14. Big tech follows the week of July 20. FactSet forecasts 22% earnings growth for the S&P 500 in Q2, the second consecutive quarter above 20%. The bar is high, and the market has already anticipated that to some extent. The disappointment risk is greater than the upside surprise risk in the mega-cap tech names. The rotation winners have less positive anticipation priced in and more room to work.
The FOMC minutes Wednesday and the ISM Services Tuesday are the only scheduled catalysts before earnings. The week is set up for the digestion phase after last Thursday’s action. That is the environment where careful stock picking pays and where chasing the wrong bounce hurts.
Strategy
My defensive posture remains in place with high cash levels. I’m still heavy in biotechnology with the names that have been working and have no interest in chasing chip bounces. I am watching for the setups where the rotation is creating new leaders.
I said Thursday that I wanted to be more aggressive with new buys this week. The setup is there but it requires being selective. Many of the rotation winners are extended.
The names I am watching are those with independent catalysts and clean charts that have not yet participated in the rotation moves. Stock picking is the game and the picking has to be careful.
At the time of publication, Rev Shark was long ABVX, RVMD and NBIX.
