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No, you aren’t watching a rerun from last season: President Trump says the U.S. will impose 50% tariffs on certain Canadian goods. Investors are more focused on the ongoing shooting war than possibly rekindled trade wars. Hopes for a diplomatic breakthrough with Iran have halted the recent surge in oil prices. Stock futures are mostly pointed higher ahead of the U.S. market open as chip makers’ shares continue a rebound.
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Bad breadth?
The stock market is a lot like a duck at the moment. It’s gliding along the water, occasionally changing direction or ruffling its feathers. Beneath the surface, though, investors are paddling furiously to navigate shifting financial currents.
Take the market’s closely watched “fear gauge.” The Cboe Volatility Index, or VIX, uses options prices to get a rough measure of how much choppiness investors expect in the S&P 500 index in the coming 30 days. At 17.5, it’s below the index’s long-term average.
But look at how much traders are paying to hedge against big moves up or down in individual stocks and a totally different picture emerges. That can be seen from a related measure, VIXEQ, which is above 50.
It’s derived from a similar calculation for each stock in the index, weighted by market value. Individual stock volatility is always higher, but the gap between the two just hit a record.
Investors aren’t bracing for some shocking development that would cause a market swoon, but they’re unusually concerned about some specific stocks and sectors, according to Citadel Securities strategist Scott Rubner. Mostly, those are the “momentum” stocks like chip makers that have gyrated with waxing and waning AI optimism.
A similar split can be seen in a much simpler measure. The divergence between market price and breadth has never been higher, BTIG technical analyst Jonathan Krinsky wrote. According to a Monday note, there have been 52 trading days so far this year when the index went in one direction but a majority of S&P 500 stocks went the other way.
That now ties tumultuous 2000 for the third highest number of instances this century. Since July isn’t over yet, 2026 will almost certainly break the record. Instances were also high in 2023 and 2024 when tech stocks were the only game in town, but that has now changed. Much like the peak tech bubble year, serious doubts seem to have emerged about many stalwarts.
Earlier this year, software stocks, once market darlings, became toxic as AI models’ coding capabilities spooked investors. More recently, chip stocks flipped within days from powering the market to entering their own bear trend. The Magnificent Seven are lagging too and AI hyperscaler Oracle closed at a multiyear low Monday.
Divergence can be the hallmark of a rally when a new industry has taken the market baton, but also a preview of broader market trouble. BTIG’s analysts write that, as the relationships between stocks normalize, “it’s likely to be a result of everything catching down to the recent pullback in AI names, rather than AI names catching up to everything else.”
This is an edition of the Markets A.M. newsletter, preparing you for the trading day ahead with expert insight into the companies and industries set to move markets. If you’re not subscribed, sign up here.
Stocks I’m Watching
↗️ Novartis: Shares in the Swiss pharmaceutical company climbed after it returned to sales growth in the second quarter, driven by some of its top-selling drugs.
↘️ Swatch: The watchmaker’s shares fell despite better first-half sales, as profit dropped compared with the same period last year.
↗️ Applied Materials, Micron Technology, Marvell Technology, Intel, Advanced Micro Devices: Chip stocks rose in premarket trading, extending their recovery after last week’s broader selloff.
↗️ Var Energi, BlueNord: Norwegian oil-and-gas company Var Energi agreed to buy Oslo-listed peer BlueNord. Var CEO Nick Walker said the $1.3 billion deal would create Europe’s largest independent oil-and-gas producer. Both stocks gained.
One Big Chart
Gold has suffered a rough few months, tarnishing the bull case for the metal. But it still has a role to play in investor portfolios, and now is a good time to buy the dip.
What I’m Reading
Silicon Valley and Washington are debating a multibillion-dollar question: Should American companies be able to use Chinese artificial-intelligence models? (WSJ)Insurers are finding workarounds on risky debt as regulators play Whac-A-Mole. (WSJ)The head of the IRS and Social Security Administration sits atop two government organizations that store reams of sensitive financial data about Americans. He used software to snoop on colleagues at his old job. (WSJ)More than six dozen U.S. data-center projects were blocked or delayed in the first quarter due to locals’ opposition. Public pushback is becoming a risk factor for AI companies and their shares. (Barron’s)Who’s afraid of Chinese AI models? (Stratechery)
Today in Markets History
📰 On this day in 1933, as Wall Street began to digest the implications of President Franklin D. Roosevelt’s “New Deal,” the Dow Jones Industrial Average plunged by 7.55 points, or 7.8%.
Beyond the Newsroom
WSJ | Buy Side: The best pet-wellness plans save you money on your pet’s preventive care.
About Me
Business and finance have fascinated me for a long time. Before writing this newsletter, I edited The Wall Street Journal’s Heard on the Street team for a decade, wrote two investment books and managed a team of stock analysts at a global investment bank.
The Markets A.M. newsletter prepares you for the trading day ahead, with expert insight into the companies and industries set to move markets. Send your feedback to [email protected] (if you’re reading this in your inbox, you can just hit reply). For a recap of the day when the markets close, sign up for Markets P.M.
