Latest / The SPY Trader / AI Exhaustion and the Defensive Rotation

Transcript

AI Exhaustion and the Defensive Rotation · The SPY Trader

• 0:00
  Hello there and welcome to another episode of Spy Trader .
• 0:04
  I am your host , Barnaby Butterscotch , and I am so glad you could join me for our midafternoon market checkin .
• 0:10
  It is currently 2:30 pm on Tuesday , July 7th , 2026 , here in the Pacific time zone .
• 0:18
  We have a lot of moving parts in the market today , so let’s get right into what is happening on Wall Street .
• 0:24
  It has been a bit of a rollercoaster ride today .
• 0:28
  Early this morning , there was a brief moment of celebration as the Dow Jones Industrial Average crossed a historic milestone , hitting 53,000 for the first time ever .
• 0:39
  However , that party did not last long .
• 0:42
  By the time the closing bell rang , the Dow was actually down a quarter of a percent to 52,925 .
• 0:50
  The broader markets felt even more pressure .
• 0:54
  The S&P 500 , which many of you track through ETFs like SPY , VOO , or IVV , fell nearly half a percent to close at 7,503 .
• 1:05
  The real pain , though , was in the tech world .
• 1:07
  The Nasdaq Composite , or QQQ , dropped over one percent today .
• 1:12
  This was largely driven by what analysts are calling AI exhaustion .
• 1:16
  We saw a massive selloff in semiconductor stocks , with the Philadelphia Semiconductor Index plunging over four and a half percent .
• 1:25
  Even a giant like Samsung , which reported a staggering 19fold increase in operating profit today , saw its shares drop over seven percent because investors are worried the peak of the chip cycle is already behind us .
• 1:39
  Looking at the big picture , the theme of US Exceptionalism that we saw earlier this year is running into some hurdles .
• 1:46
  First , we are dealing with a new Federal Reserve Chair , Kevin Warsh , who is living up to his hawkish reputation .
• 1:55
  With inflation hitting a threeyear high of 4.2 percent in May , Chair Warsh is signaling that a rate hike could be coming as soon as September .
• 2:04
  On top of that , geopolitical tensions in the Middle East are flaring up again .
• 2:09
  The revocation of Iranian oil licenses pushed Brent Crude prices toward 74 dollars a barrel today , which has everyone a bit nervous about a second wave of inflation .
• 2:21
  The labor market is also showing some cooling signs , adding only 57,000 jobs in June , though the unemployment rate is holding steady at 4.2 percent .
• 2:31
  In terms of sector performance , investors are definitely rotating out of highflying tech and into safer havens .
• 2:38
  Health care is a big winner right now , with the XLV ETF trading near alltime highs .
• 2:44
  Eli Lilly is a standout there , especially after the successful launch of their new GLP1 Bridge program last week .
• 2:53
  Real estate is also having a moment .
• 2:55
  Interestingly , the Vanguard Real Estate ETF , or VNQ , is up over 13 percent for the year .
• 3:03
  There is a seasonal trend we call the July REIT effect where real estate stocks have actually gone up every single July since 2008 , and so far , this July is no exception .
• 3:14
  We also have to talk about the SpaceX IPO aftermath .
• 3:18
  The quiet period for analysts ended today , and we saw some massive target prices .
• 3:24
  Goldman Sachs set a target of 205 dollars , while Morgan Stanley went as high as 300 dollars .
• 3:31
  Even with that hype , the stock , trading under the symbol SPCX , closed down at 158 dollars today .
• 3:39
  Investors are trying to figure out if a 2 trillion dollar valuation makes sense when the company lost over 4 billion dollars in the first quarter of this year .
• 3:49
  So , what should we do with all this information ?
• 3:52
  Here are a few recommendations for your portfolio .
• 3:55
  First , I recommend rotating some capital into defensive value through the Health Care Select Sector SPDR Fund , ticker XLV .
• 4:04
  With the Fed sounding more aggressive and tech looking tired , these stable companies with strong cash flows , like Eli Lilly , offer a much better setup right now .
• 4:14
  Second , you might want to capitalize on that July REIT effect by looking at the Vanguard Real Estate ETF , VNQ .
• 4:23
  It has been a leader this year , and with demand for data centers and healthcare properties from companies like Welltower and Prologis remaining high , it is a great hedge against inflation .
• 4:34
  Third , do not forget about international markets .
• 4:38
  For the first time in five years , international stocks are actually outperforming the S&P 500 so far this year .
• 4:47
  You can look at the Vanguard Total International Stock ETF , VXUS , to get some exposure there and reduce your reliance on expensive US tech stocks .
• 4:57
  Finally , a word of caution on SpaceX and the semiconductor space .
• 5:02
  It is probably best to wait and watch for now .
• 5:05
  We are seeing a cyclical cooling in chips , and with a hawkish Fed , highvaluation stocks like SPCX are going to be very sensitive to interest rate talk .
• 5:15
  I would wait for SpaceX to stabilize closer to the 135 to 145 dollar range before jumping in .
• 5:23
  That is all for this edition of Spy Trader .
• 5:27
  Stay disciplined , keep an eye on those rotations , and I will talk to you in a few hours .
• 5:33
  Happy trading !