Written by: Rita
Tide Guide
On July 21, the U.S. stock storage sector surged sharply. The DRAM ETF rose nearly 11%, while Micron, SanDisk, and Western Digital all climbed over 10%. The market is betting that the semiconductor sector has hit its bottom.
The strategy report released by Morgan Stanley the previous day presented the opposite view: this rebound is merely a technical correction; the silver analog model suggests the sector still has approximately 15% downside potential, and earnings revision indicators have retreated from historical extremes, making it unlikely that semiconductors will return to the market's main theme.
Funds continue to shift toward consumer durables, transportation, and hyperscale cloud providers, which is the core theme driving the expansion of this market rally.
The semiconductor sector hasn't finished falling yet.
In early June, Morgan Stanley warned of downward pressure on the storage and momentum sectors, primarily due to the breadth of earnings revisions reaching historical highs, stock price movements resembling commodities, and excessive concentration of leveraged positions within the market.
Current semiconductor profit revision data has turned downward, and price movements have continued to align with the silver price model; despite a short-term rebound, further downside potential remains. Even if temporary spike rallies occur, the sector is unlikely to regain its position as a market leader in the medium to long term, as capital has already been reallocated to other sectors.
Funds are flowing toward consumption, transportation, and cloud providers.
The theme of dispersion is the core logic of this weekly report. Since publishing its mid-year outlook in May, Morgan Stanley has consistently favored a dispersion-driven market, with the consumer discretionary and transportation sectors outperforming the S&P 500 by 12 percentage points over the past two months.
Five key variables supporting the market: median corporate earnings growth accelerates to double digits, semiconductor sentiment moderates, oil price floor declines, AI adoption continues to materialize, and the Fed maintains interest rates unchanged this year.
Within the technology sector, allocation preferences are clearly differentiated: prioritize cloud giants and avoid semiconductors. The weightings of Meta, Google, Amazon, and Microsoft have declined to a valuation of 21x, returning to the low range seen in March, offering long-term value across the entire AI value chain through business expansion, applications, and cost reduction.
The transportation sector's profit recovery has reached its strongest level since 2021, corroborating the rebound in ISM manufacturing and serving as the core allocation target for cyclical funds.
The market is shifting toward high-quality assets.
The sector with high capital expenditures has weakened, while high-margin, stable-performance quality companies continue to see strengthening profit revisions. A complete dominance of the quality style in the market will take another two to three months, but the shift trend has already been established.
The S&P 500 is a high-quality broad-market index that offers valuation and profitability advantages compared to overseas markets, continuously attracting foreign capital into U.S. stocks.
Risk: Deleveraging and Liquidity Tightening
Momentum trading concentrated in closing positions can easily trigger widespread market deleveraging and suppress overall risk appetite. Current market liquidity remains only in the adequate range, compounded by large-scale equity and debt financing directed toward real-sector capital expenditures, continuously increasing funding demand.
The S&P 500 has remained range-bound over the past two months, with 7,000 serving as a key technical support level. If selling pressure intensifies and geopolitical tensions escalate, the index could decline further; Morgan Stanley maintains its year-end target of 8,000. The Federal Reserve and the Treasury will only implement hedging policies reactively in the event of a liquidity crisis, making preemptive easing unlikely.
Tide View
The sector rebound on the 21st does not contradict Morgan Stanley's analysis on the 20th; short-term oversold recovery and medium-term decline in fundamentals can coexist.
Storing short-term momentum does not alter the trend of capital migration; the subsequent market focus will shift to cyclical consumption, transportation, and AI cloud providers, with semiconductors relinquishing their leading position.
Disclaimer
This article is a compilation and interpretation by Chaoxiang Research of a third-party brokerage research report (Morgan Stanley, July 20, 2026). The ratings, target prices, earnings forecasts, and related judgments cited herein are the views of the brokerage's analysts and represent only the position of their respective institution; they do not reflect the views of Chaoxiang Research nor constitute any investment advice.
The market carries risks; make decisions independently. This article should not be used as a basis for buying or selling any securities.