I hope you’re all enjoying the long weekend and had a chance to decompress.

America’s 250th birthday and the Fourth of July have now come and gone.

The key theme right now continues to be the broadening of the market and the rotation into other sectors AI trade. A lot of AI stocks have taken a breather, and the market seems to be wondering whether the theme has lost momentum. So, the recent rotation should not come as a surprise.

What stands out to me is how many stocks outside of AI now have strong charts and attractive setups. If some of these names were AI stocks, everyone would be all over them. Instead, it is mostly crickets.

Ignoring the other groups and stocks setting up right now is likely leaving a lot of money on the table. I’ll get into that more later, because I’m seeing endless opportunity and a lot of good ideas across the market.

At the same time, I want to be very clear: I am still emphatically bullish on AI as a technology. Just because the stocks take a breather does not say much about the long-term direction of the technology itself.

I still think many people are massively underestimating AI. Years from now, the world we live in today will probably look ancient, the same way the early to mid-2000s look ancient now.

AI will create a similar before-and-after moment to the internet or the smartphone, except this time the change is happening even faster.

It feels fitting that this weekend was America’s 250th birthday, while we are also living through one of the most important technological revolutions of our lifetime.

The first half of 2026 is already in the books, and markets had a strong start to the year.

The S&P 500 gained 10%, its best first half since 2024.Small caps also led all major asset classes. The Russell 2000 did even better, rising 22.6%, its best first half since 1991. Convertible bonds, the Nasdaq 100, and commodities were also strong. Bitcoin and gold were the weakest, down 31.4% and 7.0%.

Overall, 90% of major asset classes finished the first half positive.

The S&P 500 gained over 10% in Q2. Going back to 1950, that’s happened 10 times before. Q3 was positive 8 of those 9 times, with a median gain of 7%. The full year posted a positive return 100% of the time, with a median gain of 26%. History doesn’t guarantee anything, but a hot Q2 has never once led to a down year.

July has historically been the strongest month of the year for the S&P 500. Since 2005, the index has averaged a 2.5% gain in July, which is more than 4 times the average return of the other 11 months combined. Even more interesting, July has not posted a loss in 11 straight years. That is the longest positive streak of any month over that period.

Here is the industry breakdown for the first half 2026:

Unsurprisingly, Semiconductors were the best-performing group in the market, up 94% year to date. Hardware gained 74%, while Telecom rose 49%. On the other side, Software was the only major industry that ended the first half in the red, down 8.3%, even after rebounding 20.6% in Q2.

Here is the view outside the US:

The US was up 9.88%, which was actually below the global average.

South Korea was the best-performing market in the world, up 118.61%, led by SK Hynix and Samsung as AI memory demand exploded. Taiwan gained 62.38%, driven by the AI hardware supply chain, especially TSMC, and names Foxconn, Quanta, Wistron, and MediaTek.

On the other end, Indonesia was the worst-performing market, down 41.49%, followed by China and India.

Market breadth is also improving under the surface. 51% of S&P 500 stocks are now trading above both their 50-day and 200-day moving averages, while only 24% remain below both. This is exactly the kind of broadening bulls want to see beneath the index level.

Semis are becoming the market. I know we are very early in the AI revolution, but we’re not early in the semiconductor trade any more which simply means that there will be more volatility and while there is still plenty of upside, a lot of the gains have already been made. To be clear, I don’t think semis or the AI trade has completely topped out yet, but I do think these stocks may need some time to breathe.

Bullish sentiment has dropped sharply. Investors are clearly becoming more skeptical here. That is actually a positive sign. If the market keeps broadening while investors remain skeptical, this rally still has fuel for another leg higher.

Despite everything going on in the world, this has actually been one of the calmer years in recent memory. The biggest drawdown so far in 2026 has been 9%. Compare that to prior years on this chart and you’ll see just how smooth this ride has been so far.

Q2 earnings season kicks off in 2 weeks, with many Big Tech companies reporting near the end of July, including Tesla, IBM, Meta, Microsoft, Apple, and Amazon.

I’m positive we’ll get another strong earnings season, but skepticism is building up. I would expect a lot of Investors are going to de-risk before earnings as they question margins, capex, and the ROI on AI spending.

That is not necessarily a bad thing but it’s important to keep in mind, especially if we see more volatility down the road. And when investors de-risk before earnings and companies still deliver strong numbers and guidance that the setup would create a good setup for the second half of 2026.

To sum it up:

Semiconductors, memory, and AI infrastructure finally came under real pressure after months of massive gains. Yet the broader market held up surprisingly well. In fact, the Dow Jones and the Small Caps made new highs. The Russell 2000 is much more interesting because it is breaking out while its holdings are spread across healthcare, software, financials, and industrials. That is what broadening looks like. That’s why sectors outside of AI like biotech continued to do very well, and a lot of other groups started acting much better. That tells me this is still a constructive market, but the leadership has clearly changed and we’re seeing some much needed rotation.

This is the market broadening while some of the most crowded trade start to unwind. That is healthy for the market and probably healthy for the AI trade too. Stocks do not go up hundreds of percent forever without pause. The key now is whether AI infrastructure stocks can base without fully breaking down. I still think AI is the most important technological trend of our lifetimes, and I expect many of these stocks to set up again.

It’s important to realize is that stocks don’t only go up. Stocks that explode and double, triple, or more within a few months need to base out. Early buyers take profits, and hopeful traders buy those shares in hopes high keeps going higher. This creates a corrective or basing period.

However, these periods can be tricky for momentum names because they are the most vulnerable when there are some corrective actions. High beta and momentum names have seen one of their worst multi day moves since COVID.

So the market is shifting, and I view that as healthy. The old AI infrastructure leaders likely need time, but money is clearly moving into new groups. Biotech, fintech, healthcare, industrials, select small caps, and other under owned areas are starting to work. That is where my focus has shifted.

There is still a lot of money to be made out there. You just have to follow the market where it is going next, not where it already was. And expect more breakdowns and highlights of those sectors.