Written by: Rita

Trend Guide

On July 21, the US stock market's storage sector experienced a violent rebound. The DRAM ETF rose nearly 11%, with Micron, SanDisk, and Western Digital all rising over 10%. The market is betting that the semiconductor sector has bottomed out.

However, Morgan Stanley's report released the previous day held an opposing view, stating that this rebound only constitutes a technical repair, with a silver comparison model estimating that the sector still has about 15% downside potential. Profit correction indicators have also retreated from historical extremes, making it unlikely for semiconductors to return to the main line of the market.

Funds are continuously shifting towards consumer durable goods, transportation, and super-large cloud vendors, which is the core main line of this round of market diffusion.

The Semiconductor Sector Hasn't Finished Dropping

At the beginning of June, Morgan Stanley warned of the pullback pressure in the storage and momentum sectors, with the core reason being that the breadth of profit corrections had reached historical highs, stock price movements resembled commodities, and on-market leveraged positions were overly concentrated.

Currently, semiconductor profit correction data has turned downward, and price movements continue to align with silver trend models, suggesting there remains downside potential after a short-term rebound. Even if a short-term pulse rally occurs, it is doubtful that the sector can once again lead the market in the medium to long term, as funds have already been diverted to other tracks ahead of time.

Money is Flowing Towards Consumer, Transportation, and Cloud Vendors

Market diffusion is the core logic of this weekly report. Since releasing their mid-term outlook in May, Morgan Stanley has consistently been optimistic about the diffusion trend, with consumer discretionary and transportation sectors achieving a relative excess return of 12 percentage points over the S&P 500 in the past two months.

The five core variables supporting the market are: median corporate profits achieving double-digit acceleration, a decline in semiconductor prosperity, a downward shift in oil price centers, continuous realization of AI, and the Federal Reserve maintaining interest rates unchanged during the year.

Internal differentiation in the tech sector is clear, prioritizing layouts in cloud giants while avoiding semiconductors. Meta, Google, Amazon, and Microsoft have seen their equal-weight valuations drop to 21 times, returning to the low range seen in March, while having long-term value in AI business, applications, and cost reduction across the entire industry chain.

The profit recovery of the transportation sector has reached a new high since 2021, concurrently confirming the ISM manufacturing rebound, which is the most central allocation direction for pro-cyclical funds.

The Market is Switching to High Quality

High capital expenditure sectors are weakening, while high-margin and stable performance quality companies are continuously strengthening their profit corrections. The complete dominance of high-quality style in the market will take another two to three months, but the switching trend has already been established.

The S&P 500 as a whole belongs to a high-quality broad base, possessing valuation and profit advantages compared to overseas markets, continuously attracting foreign capital inflows into US stocks.

Risks: Deleveraging and Tightening Liquidity

Momentum trading concentration can easily trigger widespread deleveraging in the market, suppressing overall risk appetite. Currently, market liquidity is only maintaining in a sufficient range, along with large-scale financing in equity and debt for real capital expenditures, continuously elevating funding demand.

The S&P 500 has maintained a period of震荡整理, with 7000 points being a key technical support level. If momentum selling pressure spreads and geopolitical conflicts escalate, the index may have the potential to probe lower, while Morgan Stanley maintains an annual target of 8000 points. The Federal Reserve and Treasury will only passively implement hedging policies after a liquidity crisis emerges, with low probability for preemptive easing.

Trend Perspective

The sector rebound on the 21st is not contradictory to Morgan Stanley's assessment on the 20th; both short-term oversold recovery and medium-term prosperity decline can coexist.

The short-term pulse in storage will not alter the trend of fund migration; the future main lines of the market will focus on pro-cyclical consumption, transportation, and AI cloud vendors, while semiconductors will relinquish their leading position.

Disclaimer

This article is a summary and interpretation of third-party research reports (Morgan Stanley, July 20, 2026) by Trend Research. The ratings, target prices, profit forecasts, and related judgments quoted in this article are solely the views of the analysts from that firm and do not represent the views of Trend Research, nor do they constitute any investment advice.

The market has risks, and decisions must be made independently. This article should not be used as the basis for buying or selling any securities.