Tough start to the trading week, no doubt. It’s hard to miss this morning’s weakness in semiconductors, particularly with Nvidia down 8%.

For those who believe the market can only move higher with Nvidia leading the way, it’s time to reconsider.

Last week, despite Nvidia dropping 5%, the S&P 500 finished flat. With that in mind, it shouldn’t be hard to imagine a world where the S&P 500 moves higher as long as Nvidia manages to tread water.

Rotation is Good for Diversification

Today, investors are locking in some post-PCE profits ahead of Friday’s payrolls report, resulting in this defensive rotation. Sure, the indices are lower, but there are pockets of strength. Right now, 74 S&P 500 companies are making new 52-week highs. Rotations like this can keep the indices moving higher (or at least afloat) while the leadership group takes a breather.

Countercyclical sectors – healthcare, staples, utilities – are up 2-3% as cyclical sectors – semiconductors, industrials, financials – are sliding 3-5% lower.

Diversification has its drawbacks, but on days like today, it pays for itself.