July brought a great stock market rotation. Here's why it is happening

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Advanced Micro Devices Inc,Investment Strategy,Stock Markets

Entering the last day of the month, the S&P 500 is flat for July but everything else further down the market capitalization scale is having a fine time.

While we are getting a tech rally Wednesday thanks to Advanced Micro Devices , this is the month when rotation became more than a one day event. We are going into the last day of the month with the S & P 500 little changed in July, but everything else further down the market capitalization scale having a fine summer: Major indexes in July S & P 500: +0.7% S & P 500 Equal Weight +4.8% Russell 2000 +10% S & P Midcap +5.

3% Why is this happening? Since small-cap companies often have more debt and higher borrowing costs, the expectation of lower rates is certainly a factor. But valuation plays a part as well. Large cap stocks, particularly tech, have grown their valuations much faster. I noted weeks ago that more fundamentally inclined investors were worried about the slower rate of earnings growth for big cap technology stocks .

 

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