The Story Behind the Chip Selling

The Market Is Repricing

Jason Bodner

Founder, Outlier Intel

The selling in technology and semiconductor names over the past several weeks has been violent, choppy, and clumpy. Companies beat earnings and get sold anyway. Prime example: TSMC beat earnings, raised guidance, and still fell 4%.

That type of behavior could be forced liquidation, and the margin debt data tells you exactly where it’s coming from.

Investors collectively borrowed $1.502 trillion to buy stocks as of June 2026. That’s a record by a wide margin. It’s 49% more than a year ago and 60% higher than the prior peak set in October 2021.

Here’s how the machine works. Brokers lend clients money against their portfolio, charging anywhere from 5% for large institutional accounts to over 10% for retail clients. At a blended rate around 7.5%, that’s roughly $112 billion in annual interest flowing to brokers on borrowed capital.

The broker holds your securities as collateral. As long as your account equity stays above the maintenance requirement – usually 25% to 30% of the portfolio’s value – the loan stays in place. But when markets get shaky and account values drop, those thresholds get tested fast.

When a client falls below maintenance, the broker issues a margin call. Most can’t deposit cash fast enough, so positions get sold at whatever price the market gives.

Here’s the part most investors don’t realize: Brokers don’t wait for the margin call to fail. They watch the numbers in real time. When they see a client’s cushion eroding, they start making calls and quietly reducing their own exposure before the problem becomes their problem. If a client can’t cover, the broker eats the loss. So brokers are highly motivated to act early and act fast.

In a market where $1.5 trillion in borrowed money is concentrated in the same handful of high-momentum names, that dynamic can cascade quickly. One fund gets a call and sells chips to cover. That selling pushes chip prices lower. That triggers another fund’s maintenance threshold. More selling follows.

To me, that’s what the sloppy chip selling looks like.

We saw the same pattern in 2021. Margin debt peaked at $935 billion in October of that year. The names hit hardest over the following months were exactly the ones that had run the most. Over the next 14 months, $328 billion of margin debt came out of the system. The S&P 500 fell roughly 20% over the same period. The correlation was tight, and the selling was ugliest in the names carrying the most embedded gains.

Today’s margin pile is 60% larger than that prior peak.

Add to this the macro headwinds arriving all at once. Iran and the U.S. are exchanging strikes with the Strait of Hormuz back in play, sending oil from $71 to $84 in three weeks.

Senator Lindsey Graham’s sudden passing opened a Senate seat that could shift the chamber’s balance, adding political uncertainty on top of everything else. A Democratic Senate shift would put AI regulation back on the table, a direct headwind for the sector carrying the most margin debt. SpaceX has now dipped below its IPO price. The lights came on at the party.

So here is the honest forecast. August and September are the two weakest months on the calendar historically, averaging losses since 1990. In midterm election years, that seasonal weakness gets amplified. Most of the year’s volatility arrives before October.

But here is where the data gets interesting.

The Big Money Index rose more than five points in four sessions this week even as the Nasdaq was falling. On Thursday, the day the Nasdaq dropped nearly 1.5%, institutional inflows came in at one of the strongest single-day readings of the year. Prices falling while institutional conviction rises is not a market breaking down.

It is a market repricing.

Since 1990, there have been 28 instances in July where the Big Money Index rose sharply while the Nasdaq fell, outside of genuine crisis years. One year later, the market was higher in every single instance, averaging a gain of more than 15%.

In midterm years specifically, seven comparable setups produced an average one-year gain of nearly 22%, with a perfect win rate at both six months and one year.

The fourth quarter of midterm years has averaged 7% gains with an 88% positive rate since 1926. Since 1950, the S&P 500 has averaged a 36% one-year forward return off its midterm year lows.

The leverage will come out of the system. The uncertainty will eventually clear. And the companies doing the actual work of building the next era of technology are still doing that work.

The Inflation Puzzle Isn’t Solved Yet

Larry Benedict

Founder, The Opportunistic Trader

Last week’s inflation reports were almost certainly received well inside the walls of the Federal Reserve.

June’s Consumer Price Index (CPI) report came in well below expectations, with month-over-month (MoM) inflation falling 0.4% against forecasts of a 0.1% decline. It was the first monthly fall since May 2020. Year-over-year (YoY) CPI also fell to 3.5% from May’s 4.2% print, comfortably below estimates of 3.8%.

That immediately caused investors to reassess the outlook for U.S. interest rates.

A softer-than-expected June Producer Price Index (PPI) print saw rate hike expectations dialed back even further. Against consensus forecasts of a flat reading, June’s MoM came in at -0.3% – its first decline since August last year and a significant pullback from May’s 0.6% reading.

Just a couple of weeks ago, markets were factoring in a roughly 30% chance of a 0.25% rate rise at the Fed’s meeting later this month. But after the CPI and PPI releases, expectations dropped to around 11%.

Despite the softer inflation data, we saw little follow-through in the stock market. Both the Nasdaq and S&P 500 continued tracking sideways in their consolidating triangular patterns.

That tells you the market is not yet fully convinced that inflation is behind us. It’s also why Treasury bond yields have remained sticky. U.S. 10-year yields have remained hovering around the 4.55%–4.60% range, not far below their recent 4.69% high.

A fall in energy prices was the major catalyst in the inflation prints coming in lower than expected. Yet hostilities have resumed in the Middle East, causing President Trump to call the ceasefire over.

I suspect he will likely capitulate soon. But any prolonged fighting would push oil prices (and inflation) higher again, keeping upward pressure on rates.

That’s also why markets remain cautious. While the probability of a July rate hike has dropped dramatically, the Chicago Mercantile Exchange’s (CME) FedWatch Tool is still pricing a 44.3% chance of a 0.25% rise by December, compared with just a 26.7% probability of rates remaining unchanged.

The Fed will also be closely watching the University of Michigan’s Consumer Sentiment Survey today.

It bounced back to 49.5 points in June from May’s record low, and the trend continued in July with a bump to 54.4. Recall that consumer sentiment has a strong influence on consumer spending – the largest component of the U.S. economy.

There aren’t many other major economic releases to come before the Fed’s next meeting kicks off. But we can still expect speculation around interest rates to intensify.

Regulation for the Next Generation of Medicine

Jeff Brown

Founder and CEO

The U.S. Food and Drug Administration (FDA) recently announced a proposal to modernize how drug manufacturing facilities register with the agency.

While this may sound like a technical regulatory change, it is part of a much larger effort to strengthen America’s pharmaceutical industry, reduce unnecessary paperwork, improve supply chain security, and encourage more drug manufacturing in the United States.

The proposal reflects the FDA’s growing recognition that manufacturing technologies have changed significantly over the past decade, and the regulatory system needs to evolve alongside them.

One of the biggest changes involves companies that use a modern “hub-and-spoke” manufacturing model. Instead of producing medicines at one large factory, some companies now operate several smaller manufacturing sites that all work under one centralized quality management system.

Under the current rules, each of these facilities must register separately with the FDA, creating additional paperwork, costs, and delays. Under the proposed rule, these facilities could register as a single manufacturing network.

Companies would still be required to notify the FDA whenever they add, remove, or relocate manufacturing sites, but the overall process would become much simpler and more efficient.

The proposal also focuses on improving visibility into the global pharmaceutical supply chain.

Today, many medicines sold in the United States rely on active pharmaceutical ingredients (APIs) or other components manufactured overseas, often in areas that have poor quality control.

In some cases, foreign facilities that produce these ingredients for other overseas manufacturers are not required to register with the FDA, leaving gaps in the agency’s understanding of the origins of certain medicines and ingredients.

The proposed rule would close many of these gaps by requiring more foreign manufacturers to register and report what they produce. This would give the FDA a clearer picture of the supply chain and improve its ability to identify quality problems, investigate safety concerns, and respond more quickly to any disruptions.

For biotechnology and pharmaceutical companies, these changes could provide meaningful benefits. Companies investing in advanced manufacturing technologies should face fewer administrative burdens when expanding production capacity or opening additional manufacturing sites.

This is particularly important for gene therapies, cell therapies, RNA medicines, and other advanced treatments that often require flexible manufacturing systems rather than one massive production plant.

At the same time, clearer registration requirements could reduce regulatory uncertainty and make it easier for companies to build manufacturing capacity in the United States.

These proposals also complement other recent FDA initiatives, such as the PreCheck Pilot Program, which encourages companies to engage with the FDA earlier when planning new domestic manufacturing facilities.

Patients could also benefit from these changes over the long term.

The COVID-19 pandemic and several recent drug shortages demonstrated how vulnerable global pharmaceutical supply chains can become when production is concentrated in only a few countries.

By encouraging more domestic manufacturing while improving oversight of foreign suppliers, the FDA hopes to strengthen the reliability of medicine supplies and reduce the risk of shortages.

Better visibility into where drug ingredients are produced could also improve patient safety by allowing regulators to identify potential quality problems earlier and respond more quickly when issues arise.

Viewed alongside the FDA’s other recent initiatives, this proposal appears to be another piece of a much broader transformation taking place at the agency.

Over the past several months, the FDA has introduced programs to streamline clinical development, encourage domestic manufacturing, modernize facility inspections, and update regulations for advanced therapies.

Rather than simply becoming more or less strict, the agency appears to be building a regulatory system designed for the next generation of medicine.

As gene therapies, cell therapies, artificial intelligence, and advanced manufacturing become increasingly important, the FDA is adapting its own processes to support innovation while maintaining high standards for safety and quality.

For investors, this is another encouraging sign that the FDA is working to reduce unnecessary regulatory barriers without lowering scientific standards.