Chips fell 10% in two days, and money is changing lanes

Good morning. In the last session, the Dow gained 1.1% to a fresh record. Underneath, though, semiconductor stocks, the market’s leaders, dropped 10% to 14% in just two days. The index is climbing while the money is switching lanes.

The trigger was the jobs report. With only 57,000 jobs added in June, the odds of a July Fed hike have essentially vanished. Lower rate worries let investors trim expensive AI names and move elsewhere. Nerves haven’t gone away, though: demand for put options on tech, a kind of insurance against falling prices, is the highest since 2008.

The AI bulls have homework to do. The big cloud companies plan to spend $1 trillion on AI through 2027, yet some warn their free cash flow could turn negative next year, meaning today’s prices assume everything goes perfectly. Meanwhile, the Fed under Kevin Warsh has restarted quantitative tightening, shrinking its holdings, and President Trump attacked the Fed as hostile while giving Warsh some room.

On energy, a heat wave pushed the country’s biggest power grid to expand emergency measures, and the Energy Department told data centers to use backup generators. In oil, Gulf exports have recovered to more than 10 million barrels a day as shipping through Hormuz resumes.