The equal-weighted S&P 500 just smoked the Nasdaq-100 in July — outperforming amid the violent chip-stock unwind

The recent performance of the equal-weighted S&P 500 versus the Nasdaq-100 is a notable divergence, especially considering the Nasdaq-100's historical bias towards tech stocks. The equal-weighted S&P 500's outperformance in July suggests that investors may be rotating out of high-flying tech names and into other areas of the market. This rotation could be driven by profit-taking, concerns about valuations, or a desire for more diversified exposure.

The Nasdaq-100's struggles in July were largely driven by weakness in chip stocks, which have been among the biggest beneficiaries of the AI trade. The volatility in these names highlights the risks associated with investing in a theme that has driven significant market enthusiasm. As investors reassess their positions, it's possible that the AI trade could experience further digestion, at least in the short term.

Looking ahead to August, traders will be watching to see if the volatility around the AI trade continues. Key areas to monitor include earnings reports from major tech companies, economic data that could influence interest rates, and any signs of stabilization or further weakness in chip stocks. Additionally, investors will be paying close attention to the Federal Reserve's next policy meeting, as any changes in monetary policy could have implications for market sentiment and sector rotation.

Originally reported by marketwatch.com. Trade-News adds analysis for finance & markets readers.