To The Moon

There is a divergence forming in the market that deserves serious attention, and it is not showing up in the headline index number.

The $S&P 500(.SPX)$ is holding near its highs, my anticipated annual target of 7,638 set the expected rejection in June with the all time highs at 7,620 (and posted that day that the target could be considered reached), price is compressing with a series of lower highs and higher lows. On the surface, everything looks constructive. But when I look beneath the index, at the groups that built this rally and carried it for two and a half years, the picture is more complex.

The Magnificent Seven, $Apple(AAPL)$ $Microsoft(MSFT)$ $NVIDIA(NVDA)$ $Amazon.com(AMZN)$ $Alphabet(GOOG)$ $Meta Platforms, Inc.(META)$ $Tesla Motors(TSLA)$, combined carry somewhere between $16 and $18 trillion in market capitalization. That is approximately 30 to 33% of the entire SPX.

When this group moves, the index moves. When this group stalls, the index borrows time. 2026 has not been the best year for some of these giants, MSFT, TSLA, and META have performed -18%, -17%, and -5% respectively before today’s earnings reports (as we have navigated after hours moves, the final verdict comes during market hours tomorrow), NVDA, AMZN, and GOOG have performed +14%, +6% and +9% with significant volatility. AAPL is the only outstanding considering the bullish year with +20% gains in 2026. (NVDA at +14% versus +62% average in semiconductors as sector average is quite modest).

Then there is the semiconductor complex. $Taiwan Semiconductor Manufacturing(TSM)$ $ASML Holding NV(ASML)$ $Advanced Micro Devices(AMD)$ $Broadcom(AVGO)$ $Micron Technology(MU)$ $Qualcomm(QCOM)$ $Applied Materials(AMAT)$ $Lam Research(LRCX)$, and others, carry an aggregate market capitalization in the range of $8 to $9 trillion, heavily skewed by NVDA also in this group. The combined weight of the semiconductor complex and the Magnificent Seven represents a concentration of market influence that has never existed before in this form, and both groups are now underperforming the market they are supposed to be driving.

The fundamental question I keep coming back to is what exactly is sustaining the SPX at these levels if the two groups responsible for the majority of its gains are not participating with conviction. The answer, at least partially, lies in the AI capex narrative.

Microsoft, Google, Amazon, and Meta are collectively committing hundreds of billions annually to GPU-dense data center infrastructure. That spending flows to NVDA first, then cascades through the supply chain. The entire semiconductor thesis for this cycle rests on that spending continuing, accelerating, and eventually generating returns large enough to justify the valuations embedded in both groups. The market is beginning to ask whether those returns will materialize on the timeline that current prices assume.

The earnings quality difference between these two groups also matters here. The Magnificent Seven generate revenue from advertising, cloud subscriptions, consumer hardware, enterprise software, and logistics. These are diversified, recurring, and relatively predictable streams. The semiconductor complex, by contrast, is increasingly dependent on a single demand driver. That asymmetry means the Magnificent Seven can potentially hold their valuations longer on the strength of their own fundamentals even if semiconductor sentiment weakens. But the index cannot absorb a simultaneous drawdown in both groups through rotation alone. No other sector is large enough or growing fast enough to replace $25 trillion in combined market influence if confidence in AI monetization erodes.

What the Rest of the Market Is Saying

The sector picture adds important context to this divergence. Financials are trending constructively as we also see every week with $JPMorgan Chase(JPM)$ , and $Visa(V)$ . On the surface this looks like a positive signal, and in isolation it is. Banks benefit from elevated rates, healthy credit spreads, and continued economic activity. Financials carry roughly 13% of the SPX, and their strength signals that credit markets are functioning and corporate borrowing remains viable. But financial leadership in the absence of tech confirmation as a transitional signal rather than a durable one. Late in cycles, money often rotates into financials precisely because it is leaving growth. If the economy softens from here, credit quality deteriorates quickly and financials tends to roll over just as fast as it rose.

Consumer discretionary, is heavily weighted toward Amazon and Tesla, making it a hybrid between consumer behavior and tech sentiment. Its stalling price action says the consumer is becoming more selective and that institutional money is not allocating to discretionary with confidence. When the consumer hesitates, revenue growth across the index eventually follows.

Healthcare is the signal I find most telling. It is non-cyclical. People need medical care regardless of economic conditions, and the sector benefits from demographics, GLP-1 drug demand, and ongoing biotech innovation. When institutional money rotates into healthcare at index highs, it is not expressing optimism. It is hedging. Portfolio managers are reducing risk while maintaining equity exposure, and they are doing it quietly through a defensive sector that does not announce itself the way a dramatic selloff would.

The combination of these signals, tech divergence, semiconductor and Mags 7 underperformance, financial leadership that may be transitional, discretionary stalling, and defensive healthcare accumulation, tells a coherent story. The market is not broken, but it is rotating in a way that historically precedes either a reset in leadership or a broader correction that brings the index in line with where its most important components already trade.

July has been weak so far as technical conditions anticipated, there is one week and a half ahead with major earnings reports, let’s study the charts and setups for the companies we track that are posting earnings this week (GOOG, TSLA, $Intel(INTC)$ $ServiceNow(NOW)$), their implied moves, and price levels where overextensions could reverse rapidly, as warned last week ahead of $Netflix(NFLX)$ earnings, when an intra-day reversal was anticipated in the bearish scenario (the stock recovered over 5% of their losses during market hours, chasing euphorias is risky but with technical indicators we can anticipate when the price goes too far too fast.