On the first trading day of the second half of the year, the US stock market "changed its face," and the winners of the first half experienced a significant drop

On the first trading day of the second half of the year, the style of the US stock market changed dramatically, with investors rotating from the strong-performing technology stocks of the first half to defensive sectors such as healthcare.

On Tuesday, the Dow Jones Industrial Average rose by 400 points, while the Nasdaq Composite Index fell sharply by 0.82%, with the leading technology giants of the year experiencing the largest declines. The index of the seven major US technology stocks fell by 1.15%, with significant declines seen in "big winners" from the first half, including Sea Limited, Spotify, Roblox, Nvidia, Broadcom, AMD, Netflix, and Meta.

Trading data shows that this is the largest scale of momentum stock liquidation since the DeepSeek shock in January this year, with AI-related trades facing significant sell-offs, while previously underperforming tariff-affected stocks and real estate stocks surged.

The market is anticipating an agreement between the US and its trading partners, as Trump's 90-day grace period on the highest tariffs will expire next week. Wallstreetcn previously mentioned that Trump stated later on Tuesday that he "does not consider extending the tariff suspension period after July 9," which dragged down all major indices.

Additionally, according to observations from Goldman Sachs' trading department, the market rotation is mainly driven by the reallocation of funds after the start of the third quarter, Powell's latest speech, and investors taking profits ahead of the employment data release.

Technology Giants Sold Off, AI Trading Cools

In the past two months, investors have been keen on chasing artificial intelligence and technology stocks with strong growth momentum. Anthony Saglimbene, Chief Market Strategist at Merrill Investment, stated, "I think this trade has been exhausted." The technology sector ETF surged nearly 23% in the second quarter but fell 0.9% on the first day of the third quarter.

It is worth mentioning that, despite the overall pressure on the technology sector, Apple stock, which has fallen 18% this year, performed outstandingly, becoming a highlight in the technology sector. Tesla fell by 5%, after Trump hinted that DOGE should investigate the government subsidies received by Musk's company.

Pete Callahan from Goldman Sachs' trading department pointed out that this rotation "is mainly driven by the sharp reversal of winners from the beginning of the year to date," with stocks like SE, SPOT, RBLX, NVDA, AVGO, AMD, NFLX, and META showing significant performance changes. He believes these movements are related to the quarterly turnover, stating, "We saw a lot of institutional investor movements across sectors last week, raising suspicions that there may be hesitation to sell/reduce some year-to-date performance/theme winners before the end of the second quarter."

The market volatility on the first trading day of July was described by Goldman Sachs' trading department as a "fierce" collapse of momentum trading. Goldman traders believe that, although there is no single clear catalyst, this dramatic change is the result of multiple factors working together:

The Start of a New Quarter: Traders adjust their positions at the beginning of a new quarter, seeking new investment ideas. Many investors may be reluctant to sell their year-to-date winning stocks before the end of the second quarter to lock in paper profits, thus postponing selling behavior to the first day of the third quarter.

Powell's Comments: Although Federal Reserve Chairman Jerome Powell's speech did not offer much new information, he reiterated a wait-and-see attitude towards inflation and hinted that a rate cut in July is not impossible, adding a macro backdrop for market rotation.

Profit-Taking Ahead of Non-Farm Data: Market sentiment has turned cautious ahead of the critical Non-Farm Payroll (NFP) report, with some investors choosing to take profits early.

Federal Reserve Chairman Powell confirmed at the European Central Bank panel meeting in Portugal that the Fed might have cut rates again if it weren't for tariffs. He added that any future actions would depend on data and did not directly answer whether July is too early.

"In fact, when we look at the scale of tariffs, we entered a wait-and-see mode, and all U.S. inflation forecasts have risen significantly due to tariffs," Powell stated. These remarks led to a significant rise in U.S. Treasury yields, particularly with longer-term yields performing worse.

Strong Performance in Healthcare and Consumer Stocks

In stark contrast to technology stocks, the healthcare sector saw a strong rebound. Amgen and UnitedHealth Group rose over 4%, Merck increased by more than 3%, and Johnson & Johnson rose about 2%, driving a significant increase in the Dow Jones Industrial Average.

According to Goldman Sachs analyst Jon Chan, the healthcare sector's performance relative to the S&P 500 at the end of the second quarter hit its lowest level since 2001, making the sector particularly "resilient" in the rotation market. Managed care, pharmaceuticals, and medical devices sub-sectors all recorded gains of 2-3%.

The consumer goods sector also benefited from the rotation. According to Goldman Sachs analyst Scott Feiler, discretionary consumer goods have seen the most net selling on its prime brokerage books this year, with exposures on a 1-year, 3-year, and 5-year basis at single-digit percentage lows.

The main stocks that rose were those that were shorted, including American Eagle Outfitters and Abercrombie & Fitch, while some heavily held stocks like Ralph Lauren performed poorly