Unpacking July’s S&P 500 Drops Amid the Great Rotation

Seven months into 2024, the stock market has shown robust performance, but July marked a significant shift. A “Great Rotation” began, moving investor funds away from Big Tech and toward value stocks and small-caps.

On Wednesday, MarketWatch’s Joseph Adinolfi summarized July’s stock-market dynamics, highlighting how expectations of a change in Federal Reserve policy prompted investors to shift away from the largest technology stocks. He also explored the potential for continued rallies in value stocks and small-caps.

A look at the performance of broad stock indexes underscores investors’ renewed interest in market segments that had underperformed for several years through the first half of 2024, while Big Tech names had soared.

Index Performance in July

Here’s a summary of how several indexes performed during July, alongside their price changes for the first half of the year to illustrate the rotation. All price changes exclude dividends.

• S&P 500: Weighted by market capitalization, meaning that giants like Microsoft Corp. (MSFT -1.08%), Apple Inc. (AAPL 1.50%), and Nvidia Corp. (NVDA 12.81%) together make up 19.4% of the $556 billion SPDR S&P 500 ETF Trust (SPY 1.63%). The top 10 companies in SPY account for 35.1% of the portfolio.
• S&P Small Cap Index (SML 0.54%) and S&P Mid Cap 400 Index (MID 0.59%): Also weighted by market cap but not as heavily concentrated at the top. Both outperformed the S&P 500 in July.
• Russell 1000 Growth Index (RLG 2.69%) and Russell 1000 Value Index: Showed that value stocks significantly outperformed growth stocks in July.

Sector Performance in July

Here’s how the 11 sectors of the S&P 500 performed during July, sorted by their performance:

• Worst-performing sector: Communication services, followed by information technology. The communication services sector is heavily influenced by tech-oriented names like Meta Platforms Inc. (META 2.51%) and Alphabet Inc. (GOOGL 0.73%, GOOG 0.75%), the largest stocks in the sector by market cap.

Worst Performers in July

Here are the 10 S&P 500 stocks that fell the most in July:

1. Micron (MU -7.08%)
2. Super Micro Computer (SMCI -5.30%)
3. Lam Research (LRCX -7.77%)

These tech stocks soared in the first half of the year but pulled back in July. CrowdStrike (CRWD -0.72%) faced a unique challenge with a worldwide computer outage caused by a software update on July 19, which weighed heavily on its share price.

The Magnificent Seven’s Performance

These seven companies constitute 30.6% of the SPY portfolio and dominated technology stock action, especially last year. Here’s their performance in July and during the first half of 2024, sorted by market capitalization as calculated by FactSet:

• All but one of the Magnificent Seven reversed course in July after impressive gains in the first half of the year. The exception was Tesla (TSLA 4.24%), which continued to rise.

This shift in investor behavior indicates a potential long-term trend as the market adjusts to new economic conditions and expectations.