Wall Street's AI Trade Cooled Off, And The Selloff Spread

Wall Street’s AI-driven selloff cooled unevenly, but the drop in market leaders spilled into broader trading. The “Magnificent Seven” mega-cap technology names fell, dragging communication services and information technology to the bottom of their sector tables, while energy was the only gainer as crude prices rose. The pattern suggested investors were reducing risk broadly rather than reacting to a single negative data point. Earnings themselves were not the problem: LSEG data showed about 90% of the first 49 S&P 500 companies to report beat analysts’ forecasts, and analysts expected roughly 26% year-on-year earnings growth. However, the Philadelphia Semiconductor Index was down about 17% in July, reinforcing concerns about crowded leadership trades unwinding. As large investors cut exposure, selling can flow into index funds and sector ETFs, increasing correlation and weakening market breadth, which helped decliners outperform advancers even when many companies cleared earnings expectations.