Sector Expansion and Rotation Trading Occurring, We Formulate a Global Investment Strategy for H2 2026

Summary

Choi Il-ho examines end-of-quarter window dressing and sector rotation, arguing that fundamental factors will reassert in July, favoring AI infrastructure and mega-cap tech stocks. He cites hyperscaler capex trends and earnings momentum as catalysts for a return to leadership by semiconductors and the Magnificent Seven.

• Institutional window dressing has driven rotation into old economy sectors, causing short-term underperformance in tech and semiconductors.
• Hyperscalers (Amazon, Microsoft, Google, Meta) are accelerating capex, supporting AI infrastructure demand.
• Philadelphia Semiconductor Index (SOXX) has corrected after YTD gains exceeding 100%, creating a re-entry opportunity.
• The Magnificent Seven (MAGS) have underperformed YTD but are expected to recover as earnings season approaches.
• Fed expected to hold rates in July, with easing inflation and oil prices supporting a benign backdrop for growth stocks.
• From July, market focus will shift back to fundamentals, benefiting leading AI and tech names.
• Caution against overreacting to short-term volatility from window dressing.