Why US Stocks Are Falling: The Real Story Behind Nasdaq Sell-Off, Dow Resilience, and S&P 500 Risks Ahead

US stocks fell on Monday, July 13, with semiconductor stocks leading the decline and Sandisk falling more than 12%. The S&P 500 lost 0.79%, the Nasdaq-100 declined 1.88%, and Brent crude surged 9.6% to $83.30 a barrel. Most headlines pointed to one culprit: President Trump reinstating a blockade on Iranian ports and proposing a 20% transit fee for other cargo passing through the Strait of Hormuz. That explanation is accurate but also incomplete. 

Pull back to the last four weeks and a different story shows up: the Dow has actually climbed 1.6% to fresh highs over that stretch, while the Nasdaq has fallen more than 4%, a gap that has nothing to do with this weekend's news.

Let's break down what is really moving US stock market right now: a rotation away from expensive tech that started weeks ago, a Federal Reserve that has flipped from expected rate cuts to possible hikes, a genuine oil shock from a collapsing ceasefire, and two different kinds of debt, corporate and retail, that are both stretched at the same time.

Why is Nasdaq Falling While the Dow is Outperforming?

Most coverage of Monday's sell-off treats it as a single event. The market data tells a longer story.

Source: Google Finance

Do the math on that table and the Dow has outperformed the Nasdaq by more than 5 percentage points over exactly four weeks, a gap that shows up well before this weekend's Iran headlines enter the picture at all. The Nasdaq's slide is not new. The Nasdaq-100 posted an intraday high of 30,762 on June 3, having surged more than 33% from the March lows tied to an earlier round of Iran-related fighting. It has essentially gone sideways to lower since, even as the Dow kept setting fresh records through July 6. 

The semiconductor correction had already become meaningful before July 13. The Philadelphia Semiconductor Index has fallen nearly 12% lower for the month and is 14% below its June 22 peak. One important trigger for the latest round of semiconductor selling was Samsung Electronics’ preliminary Q2 result on July 7. Samsung estimated operating profit of roughly $58.4 billion was nearly 19 times the previous year’s level and above LSEG consensus estimate. Yet Samsung, SK Hynix and several US chip stocks still fell as investors questioned whether memory-price growth and AI infrastructure spending could sustain their recent pace.

The results did not miss expectations; instead, they showed how high the expectations surrounding the sector had become. The sell-off despite an earnings beat suggests that strong results had already been partly priced in and that investors were becoming more cautious about the durability of the AI and memory cycle.

Put another way, the last four weeks were not calm before Monday's storm. They were a rotation already in progress, out of the most expensive, highest-momentum part of the market and into everything else. Monday's Iran news added a second, unrelated push in the same direction.

How Iran Tensions and Rising Oil Prices Are Affecting US Stocks

US-Iran fighting escalated sharply in March, pulling the Dow about 10% below its peak. President Donald Trump announced a ceasefire around mid-June, triggering some of the Dow, S&P 500 and Nasdaq Composite’s best single-day gains of the year. Oil eased, OPEC+ raised output as the Strait of Hormuz reopened, and US gasoline prices fell roughly 10% through June.

The ceasefire collapsed over July 11–13. Iran struck US-linked facilities in Kuwait, Jordan and Qatar, while Trump said on Truth Social that the US was reinstating a blockade on Iranian shipping through the Strait of Hormuz and imposing a 20% transit fee on other cargo. 

Brent crude surged 9.6% to $83.30 a barrel on July 13, even as OPEC reduced its forecast for 2026 global oil-demand growth to 780,000 barrels a day. The combination indicates that the immediate price move was being driven primarily by concerns over supply and shipping disruption rather than stronger demand.

The key risk is inflation. The US Bureau of Labor Statistics releases June inflation data today, July 14. Because June covered the ceasefire period, when gasoline prices were falling, economists expect headline inflation to ease to approximately 3.8% year on year from 4.2% in May. That could be misleading.

Oil has already reversed higher in July. If the ceasefire remains broken, July inflation, due in mid-August, could be materially worse. A soft June print, if it is reported, should not be treated as an all-clear.

How Fed Rate Hike Risks Are Pressuring Tech Stocks

Kevin Warsh took over as Federal Reserve Chair in June, and markets are still recalibrating. At his first meeting on June 17, the Fed held rates at 3.50%–3.75%, unchanged since December. However, nine of eighteen officials projected at least one hike before year-end. Warsh has repeatedly said the Fed “will deliver price stability” and, called prices too elevated without signalling what the Fed may do on July 28–29.

Rate expectations have moved sharply. The probability of at least one hike by year-end rose from around 58% in early June to more than 75% after Warsh’s hawkish debut. A soft June jobs report then pushed July hike odds down to roughly 18%, before the oil shock lifted them back to around 42% this week. 

Markets still expect a hold in July, with a possible hike closer to September. Bank of America is more aggressive, forecasting three hikes before year-end. These probabilities change daily and are snapshots, not predictions.

This matters for AI valuations because much of their value depends on cash flows expected years from now. Higher rates reduce the present value of those future earnings while also raising the cost of the substantial debt funding the AI infrastructure buildout.

Record Margin Debt, AI Borrowing Testing US Markets

A simple way to judge how risky a market selloff could become is to ask: how much of the trade is funded with borrowed money?

On the corporate side, the five biggest US hyperscalers, Amazon, Alphabet (Google), Meta, Microsoft and Oracle, issued about $150 billion of bonds in the first few months of 2026, more than they raised in the previous five years combined. Their total 2026 bond issuance could reach nearly $300 billion. 

AI-related borrowing now accounts for almost 30% of all new US investment-grade bonds. Oracle, the most aggressive spender relative to its size, was downgraded by S&P Global to BBB-, just one level above junk, with the agency specifically pointing to its AI spending. Morgan Stanley data also shows the group’s combined leverage ratio—debt relative to earnings, nearly doubling from 0.9 times to 1.8 times in less than a year.

Retail investors are also borrowing heavily. FINRA’s official margin debt data, money borrowed from brokers to buy stocks, reached a record $1.42 trillion in May 2026, up 53.7% from a year earlier. Since FINRA’s records began in 1997, margin debt has grown this quickly only three other times: late 1999 into 2000, 2007 and 2021. Each period was followed, after some delay, by a major market decline.

The takeaway is simple: when both companies and investors are heavily leveraged, even a small market fall can become more severe because borrowers may be forced to cut spending, sell assets or repay debt.

Indian investors will recognise the mechanism even if the number sounds foreign. It works like buying shares through a Margin Trading Facility, borrowing part of the money to take a bigger position than your own cash allows.

 It works beautifully while prices rise, because gains are amplified. It turns painful when prices fall, because brokers issue margin calls, forcing sales at the worst possible time, which pushes prices down further and triggers more calls. 

A correction with only one side leveraged, say just retail margin debt, or just corporate bonds, tends to stay contained. A market where both sides are stretched at once, as they are now, has historically had less room for error.

US Stock Market Outlook: What Wall Street Analysts Are Saying

Strip out the noise and the professional views split cleanly into two camps, not one.

Even the more cautious voices are not calling this a bubble popping. Fitch's Pompeii is skeptical about near-term AI returns, not about whether AI works at all. Goldman's Snider is flagging retail leverage, not company fundamentals. 

The closest thing to a consensus is that this looks like a valuation and positioning correction inside a still-intact structural story, the same description used for two earlier semiconductor wobbles this year, in June and again in early July, both of which the market largely shrugged off within days.

Is US Stock Market Overvalued? S&P 500 Valuation Explained

The Shiller CAPE ratio compares stock prices with the average inflation-adjusted profits companies earned over the past 10 years. It has remained above 40 since May 2026 and stood at 41.85 on July 13. That places the market in its second-highest valuation period on record, behind the dot-com bubble, when the ratio peaked at 44.19. This tells us stocks are historically expensive, but it cannot predict when prices will fall.

A second valuation measure tells a similar story. FactSet estimated that the S&P 500 was trading at 20.5 times expected earnings in its July 10 report, above its 10-year average of 19.0 times. This implies expected earnings of approximately $368 per share.

To understand why this matters, assume company earnings remain unchanged and only investor confidence changes. This is an illustration, not a forecast or price target.

The takeaway is simple: even if company earnings do not change, the S&P 500 could move sharply depending on how much investors are willing to pay for those earnings. At today’s elevated valuation, market sentiment is carrying a meaningful part of the index’s value.

If S&P 500 earnings earnings remain unchanged, a return to the 10-year average valuation of 19 times would imply a decline of roughly 7.3%. A rise to 23 times earnings would imply an increase of about 12.2%.

They do not include expected earnings growth. CFRA forecasts S&P 500 earnings to rise 22.9% in 2026 and another 18.2% in 2027. Q2 profit-growth estimates also range from 21% to 24% If companies deliver even part of that expected growth, higher earnings could reduce or fully offset the impact of falling valuations. 

The market therefore needs two things to remain strong: investors must continue paying high prices for earnings, and companies must deliver the expected profit growth. Q2 results beginning this week will provide an early test of whether those earnings expectations are realistic.

Five Risks That Could Turn US Market Correction into a Deeper Sell-Off

Every argument above has a counter-argument. Here are the five that matter most.

None of these risks are exotic. They are the five things that tend to show up, in some combination, before serious market corrections: a policy mistake, a financing problem, forced selling, an external shock, and expectations that ran ahead of reality. What is unusual right now is that versions of all five are live at the same time.

What Should Investors Do During US Stock Market Sell-Off?

Monday's sell-off had a real geopolitical trigger, but the more important story is a rotation that started in early June, away from the most expensive, most leveraged corners of the US market. That rotation is now running alongside a genuinely hawkish Fed, a broken ceasefire, and record leverage on both the corporate and retail sides at once. 

Whether this stays a healthy correction or becomes something bigger likely depends on three things over the next three weeks: how markets read today's CPI print, what the Fed signals on July 28-29, and how Big Tech's earnings, including Meta, expected to report around July 29 and Apple on July 30, address AI's return-on-investment question directly.

Bull case: FactSet currently estimates that S&P 500 earnings grew approximately 23.6% year on year in Q2. AI infrastructure demand also remains strong, and most large technology companies retain substantial operating cash flow and investment-grade balance sheets. If revenue growth, margins and cash generation remain resilient, rising earnings could absorb part of the market’s valuation risk.

Bear case: The Shiller CAPE remains above 40, margin debt has reached $1.42 trillion, and AI-related borrowing is expanding. If earnings disappoint while oil and interest rates remain high, valuation compression and deleveraging could reinforce each other.

If you hold US equities, this is a reasonable week to review your US stocks portfolio rather than react to headlines. The evidence does not support abandoning technology or buying every dip. AI and tech remain key earnings drivers, but high valuations and heavy index concentration increase the risk if results disappoint.

The next two to three weeks of earnings should offer a clearer signal. Investors with outsized exposure to AI, semiconductors or mega-cap tech may consider broader diversification into businesses with different earnings drivers, while more balanced portfolios may be better served by waiting for revenue, margin and guidance data before making major changes. The focus should be on company fundamentals, not a blanket sector call.