US stock market divergence intensifies: AI stock sell-off drags down US indices, while most S&P 500 constituents rise against the trend.

BlockBeats news, October 23: On October 22, U.S. stocks showed clear divergence: the S&P 500 closed down 1.2%, the Nasdaq fell 2.6%, but more than 300 S&P 500 constituents closed higher, and the Dow and Russell 2000 also closed slightly higher. Dow Jones Market Data showed that the last similar extreme divergence—with the S&P 500 falling notably while most constituents rose—was in January 2025.

The decline in a handful of large tech stocks was the main drag on the index. Currently, the 10 largest companies in the S&P 500 by market cap together account for about 40% of the index's total market value. That day, the Philadelphia Semiconductor Index fell more than 6%, down more than 26% cumulatively from its June high and entering a technical bear market; although Meta reported better-than-expected results, concerns over AI capital expenditure and subsequent financing needs drove its shares down about 7%. By contrast, the consumer staples sector strengthened, with stocks such as General Mills and Campbell's rising.

This divergence has persisted for weeks. BTIG strategist Jonathan Krinsky calculated that on more than 30% of trading days this year, the S&P 500 index and most of its constituents moved in opposite directions, a proportion higher than in any full year since 1996. As of Thursday, the equal-weighted S&P 500 was on track to rise this week, while the Philadelphia Semiconductor Index continued to fall; if this pattern holds through Friday's close, the two will have moved in opposite directions for 8 consecutive weeks, the longest streak since data began in the mid-1990s.

Farzin Azarm, managing director of U.S. equity trading at Mizuho Americas, believes the money is mostly being reallocated within the market rather than fleeing risk assets across the board. When AI stocks are sold off, funds rotate into consumer staples, small- and mid-cap stocks, and U.S. Treasuries; when chip and data center stocks rebound, funds return to growth sectors. However, Krinsky warned that if the rotation pattern between AI and non-AI stocks breaks down, the market could shift toward a more correlated, synchronized decline.