Key Takeaways:
US semiconductor ETFs capped the strongest first-half performance of any sector in 2026, surging 82% even as defensive groups lagged.
US semiconductor ETFs rose 3.8% on Tuesday, capping a first half in which the group returned 82%, the strongest sector performance in 2026 and more than double the next-best category.
"Semiconductors are tracking the same liquidity-driven commodity rotation that lifted silver and rare earths earlier in the cycle," said Michael Wilson, chief investment officer at Morgan Stanley. "The AI structural story is real, but the magnitude of this move reflects Fed money printing rotating through assets — and the cycle is closer to peak than launch."
The broader technology complex also posted strong gains. Global tech index ETFs and tech sector ETFs each rose at least 2.8% on Tuesday, bringing their first-half cumulative returns to more than 33%. Energy and industrial ETFs each gained more than 20% over the six-month period, benefiting from the Iran conflict-driven oil spike in the first quarter and sustained infrastructure demand.
Defensive sectors lagged. Healthcare ETFs fell 1.5%, consumer staples ETFs dropped 1.3%, and utilities ETFs declined 1.4% on Tuesday, reflecting a risk-on rotation out of bond-proxy sectors as equities rallied. Financial ETFs, consumer discretionary ETFs, and network index ETFs were the only categories to post negative first-half returns, each down as much as 1.7%.
The divergence between growth and defensive sectors has been the defining feature of H1 2026. The S&P 500 recovered from a first-quarter drawdown of more than 4% — triggered by Iran tensions and tariff uncertainty — to trade near fresh highs by late June, supported by AI infrastructure spending and resilient corporate earnings. The Nasdaq-100, heavily weighted toward semiconductor and tech names, has outperformed the broad index by a wide margin.
What the semiconductor rally means for H2
Wilson's warning carries weight because the analog has already played out elsewhere. The iShares Silver Trust fell 35% from its March peak through late June, and the VanEck Rare Earth and Strategic Metals ETF, up 144% since May 2025, has shown signs of topping. If semiconductors follow the same four-month lag pattern Wilson identified, the group could face a summer cooldown after a 170% run in the VanEck Semiconductor ETF since mid-2025.
ETF flows support the rotation narrative. US-listed ETFs absorbed $44.3 billion in the week ending June 26, pushing year-to-date inflows past $1 trillion, according to data from ETF.com. The iShares Core S&P 500 ETF saw $51.4 billion in heartbeat trades tied to quarter-end rebalancing, while the Vanguard S&P 500 ETF — now at $995 billion in assets — sits just $5 billion from becoming the first ETF to cross $1 trillion.
For investors, the question is whether the semiconductor rally broadens into software and services — where Cathie Wood's ARK Innovation ETF remains down 1.5% year to date — or whether the entire tech trade corrects together. The answer likely depends on whether the Fed's liquidity spigot remains open and whether AI CapEx continues to accelerate into 2027.
This article is for informational purposes only and does not constitute investment advice.
