Every S&P Sector Fell in September Except One
Ten of eleven S&P sectors dropped in September as oil and Treasury yields surged together, yet one corner of the market kept climbing and now sits at its highest concentration in years.
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Of the eleven Select Sector SPDR funds, only one rose in September 2026. The Technology Select Sector SPDR Fund (NYSEARCA:XLK) returned 5.08% from August 31 to September 30. The other ten fell by between 0.44% (communication services) and 7.57% (materials).
The VanEck Semiconductor ETF (NASDAQ:SMH) rose 9.41%. Over the same month, the S&P 500 slipped 0.4%. The Dow Jones Industrial Average fell 4.3%, so a narrow group of chip and AI names carried the market. September exposed a market built on one theme. It showed how little buffer the rest of the market had when oil and interest rates rose together.
The technology fund’s 5.08% is dividend-adjusted; the ten declining funds’ figures are price-only and exclude dividends. The claim also applies only to the funds. The communication services sector index rose 4.3% because it gives its largest platform companies bigger weights than the fund does.
Chips Carried Technology Higher
AI demand drove the gain, and SMH beat XLK because chips led the advance. Rising shares included Micron (NASDAQ:MU | MU Price Prediction) and Intel (NASDAQ:INTC), and Microsoft (NASDAQ:MSFT) finished its best quarter since 1991.
Microsoft’s July results show the spending behind the rally. Its commercial remaining performance obligations reached $678 billion, up 84%, and its fiscal-year capital expenditures hit $115.95 billion, much of it flowing to chipmakers SMH holds. Somebody has to power, cool, and network that expansion. We highlighted seven of those suppliers in a free report on the AI infrastructure trade.
Oil and Yields Pulled Everything Else Down
Brent crude rose about 14%, and the ten-year Treasury yield ended September at its highest level since 2002 after reaching 5.26% on September 29. Consumer confidence fell to its lowest reading since 2014.
Investors own utilities, real estate, and staples for steady dividends. When a Treasury pays more with no stock risk, those dividends are worth less, and shares fall until yields compete. That pattern fits declines of 6.61% in utilities, 7.25% in real estate and 5.15% in staples.
Real estate also borrows heavily, so higher rates lift its financing costs. Expensive fuel contracts household budgets, which helps explain the 6.65% drop in consumer discretionary. Even energy fell 3.85% despite costlier crude, which points to broad selling across sectors.
All that said, a single month is a thin basis for a trend. The S&P 500 still gained about 2% for the third quarter, and the Nasdaq Composite rose 2.5%.
Technology had run far before September. XLK is up 36.45% year to date, and SMH is up 69.11%, so the month extended leadership already concentrated, now facing the highest yields since 2002.
Bull and Bear Cases for Technology and Semiconductor Funds
Contracted demand supports the bullish argument. Microsoft’s backlog shows AI spending is committed in signed contracts, making chip demand more visible than in past cycles.
Valuation under a 5.26% ten-year yield is the bearish concern. A fund up 69.11% in nine months has little room for any pause in data center spending.
My view is that the chip concentration is fragile. XLK holds software and platform companies alongside semiconductors, which makes it the stronger of the two funds, with its last price at $195.75.
October 2026 will test that view. If the ten-year yield closes the month above 5.26% and SMH still beats XLK, the view is wrong, but if SMH gives back its 9.41% September gain first, the split was a one-month event.
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Omor Ibne Ehsan is a writer at 24/7 Wall St. He is a self-taught investor with a focus on growth, cyclical, and dividend equities that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as penny stocks.
