“Tech Stocks Tumble: Nasdaq Hits Lowest Level Since June – What’s Next?”

Tech stocks led the S&P 500 lower on Tuesday as the Nasdaq 100 closed at its lowest level since early June. This marked the fourth day in July that the tech-heavy index lost 1.5% or more, a significant shift from the previous months.

The decline in tech stocks came after the Consumer Price Index reported its first monthly drop in inflation since 2020. This led to investors rotating from large stocks into small ones, causing the Nasdaq to surrender half of its gains for the year.

Surprisingly, the Russell 2000 index, which is known for its volatility, has nearly caught up to the Nasdaq 100 in terms of performance year-to-date. This unexpected turn of events has left many investors in a state of relative shock.

The Russell 2000 now boasts a better return for the year than the S&P Select Tech SPDR Fund and is only a few points away from catching up to the S&P 500. The relationship between the Nasdaq and the Russell 2000 has seen a dramatic shift in July, with the Russell outperforming the Nasdaq by nearly 14 percentage points.

This rapid rotation from large-cap tech stocks to small-cap stocks has raised concerns about market concentration and the impact on institutional portfolios. Wall Street is now assessing the damage and adjusting their strategies accordingly.

According to Morgan Stanley’s derivatives team, the recent volatility in the market started out as a rotational event but has since evolved into a shift in directional exposure to equities. Institutions are reducing leverage and adjusting their bets on stocks in response to the changing market dynamics.

As we await the outcome of the Fed meeting and Meta’s quarterly report later in the month, it’s clear that the market is in for more turbulence. The recent rotation in the market highlights the importance of diversification and the need for investors to stay vigilant in the face of changing market conditions.

In conclusion, the market’s recent shift from tech stocks to small-cap stocks has caught many investors off guard. The volatility and uncertainty in the market serve as a reminder of the importance of staying informed and adapting to changing market conditions.