A tidal wave of “fast money” may be behind a series of seemingly irrational price swings in recent years, as fundamentals are seemingly being overwhelmed by the rush for the next big trade.
This suggests the weakness in semiconductor stocks is just beginning. Americans have been piling into the stock market in recent years. The share of U.S. households which participate in the stock market is estimated to have increased from 53 per cent in 2019 to 60 per cent in 2025, according to the securities exchange MEMX.
Moreover, U.S. equity allocations as a share of total financial assets reached record highs at the end of 2025 and have consistently stayed above the peak of the last tech boom, according to the Federal Reserve.
Interestingly, young Americans are also investing more. According to JPMorgan, the percentage of Americans between the ages of 22 and 25 who used investment accounts rose sixfold between 2015 and 2025 to 37 per cent.
It’s no wonder given that today’s young investors have never experienced a true bear market.
During the two major market crises of the past two decades – the global financial crisis of 2008, and the Covid-19 pandemic – central banks, most notably the Federal Reserve, responded by pumping as much liquidity into financial markets as was needed to stabilize them. The Fed also slashed interest rates to near zero and kept them there for years.
This is a new phenomenon. In the past, central banks would typically cut interest rates during a crisis and then raise them when it was over.
Governments also helped out with stimulus measures, particularly during the pandemic when fiscal largess was measured in the trillions.
Given all this support, it’s unsurprising that the S&P 500 has only briefly entered bear-market territory since 2011. It did so during the pandemic shock of 2020 and amid Fed tightening in 2022, but markets rebounded rapidly in both instances.
This means many younger U.S. retail investors have never experienced a deep, multi-year bear market. They have been conditioned to rely on the Fed and the government to bail them out before stock prices fall too far – and that has likely only encouraged more risk-taking.
Retail investors are now clearly a force to be reckoned with. MEMX estimates that trading volume from retail wholesalers increased to 34 per cent of total volume in 2025, up from 27 per cent a year earlier.
The rise of retail investors – who are typically thought of as more fickle than institutional players – may help explain some of the strange equity moves we’ve seen in recent years.
For starters, there’s the interesting divergence that emerged between gold mining stocks and European defence stocks throughout 2024.
European defence contractors first rallied sharply in early 2024, with the Stoxx Europe Total Market Aerospace and Defence Index rising 30 per cent from January through April, largely because of talk of more military spending in Europe in response to the war in Ukraine.
But this rally then started to lose steam without any apparent fundamental justification. And this was right around the time gold started to surge after the Fed started signalling that it might begin cutting interest rates.
Investors who wanted to get in on this gold trade – and didn’t have lots of cash sitting on the sidelines – would have needed to decide which assets to sell. The disposition effect may have come into play here. Behavioural finance research has shown time and again that investors are more likely to sell investments held at a gain than to realize losses.
While it’s impossible to prove that investors liquidated positions in European defence contractors, which had rallied strongly in the previous 12 months, specifically to chase the gold fad, the timing is notable.
Moreover, when gold prices really took off in mid-2025 – rising 133 per cent from US$2,325 per ounce to their peak in January 2026 – European defence contractors, which had gained some steam late in 2024, stalled yet again. The size of the gold move was clearly divorced from fundamentals – and the drop in European defence stocks made little sense given the ongoing conflict in Ukraine and the ramping up of tensions in the Middle East.
Retail flows were not the sole driver of these moves, of course, and one can certainly point to various fundamental triggers. But the strength and short duration of these rotations suggest a major factor may be investors taking profits in high-flying stocks to fund bets on emerging trends.
Viewed through this lens, the recent weakness in semiconductor stocks could potentially reflect fast-money investors chasing the next bet yet again.
Earlier this year, semiconductor stocks really took off as the hyperscaler rally stalled. Fundamentally, this makes sense because the AI-related capex of hyperscalers reduces their profitability and increases revenues for semiconductor manufacturers. (Though it is difficult to call a 52-per-cent rally in semiconductors in three months from April to June fundamentally justified.)
It now looks like this rally could be in trouble, however, with the Philadelphia Semiconductor Index falling almost 17 per cent this month, even as chip companies continue to generate very strong earnings and revenue growth.
This may be an indication that investors are simply taking profits in semiconductor stocks in order to invest in new opportunities. The target this time may be a host of new equity offerings that have required almost US$200-billion in financing in only a few months.
One such opportunity was the US$86-billion SpaceX initial public offering. Normally, the retail allocation of an IPO is in the order of 5 per cent to 10 per cent of the free float. In the case of SpaceX, it ended up at roughly 20 per cent, below Elon Musk’s promised 30 per cent, but still very high.
This comes at a time when the Bank of America Fund Manager Survey shows very low average cash holdings of 3.6 per cent and record-high equity allocations. That means investors were likely to sell existing stocks, as opposed to simply using cash to increase their equity holdings.
With potential IPOs from Anthropic and China’s Moonshot coming down the pike this year, and OpenAI expected next year, a lot more space will need to be created in investors’ existing equity allocations. That suggests semiconductor weakness could persist.
(Of course, investors are also parking a lot of cash in money-market funds. But these holdings may mostly be a reflection of the poor performance of bonds. In other words, they could essentially be bond substitutes, rather than dry powder that stands ready to flow into stock markets.)
There is a limit to this merry-go-round. The experience of the dotcom bubble of the late 1990s tells us that, at some point, this rotation from one hot trade to the next eventually backfires.
Once investors start losing money, the disposition effect works in reverse: those sitting on losses become reluctant to sell. Buying pressure behind the next trend fades, and fundamentals start to matter again. That is when institutional investors can break the dominance of momentum trading and enable a return to more normal market behaviour — at least for a while
Joachim Klement is an investment strategist for Panmure Liberum.