The Russell 2000 Index Posted a 10% Gain in July, Beating Other Indices

Wall Street closed July on a high note, transforming a turbulent month into a winning one.

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The S&P 500 surged 1.6% on Wednesday, marking its best daily performance since late February. This rally erased the index’s monthly losses, allowing it to end July with a 1.1% gain. Meanwhile, the Nasdaq Composite soared by 2.6%.

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These gains were driven by positive results from Advanced Micro Devices (AMD), which gave a boost to the struggling chip sector. AMD's stock jumped 4.4% due to better-than-expected second-quarter earnings and revenue. This surge sparked a 12.8% increase in artificial intelligence (AI) leader Nvidia — its largest one-day gain in six months.

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However, the major stock benchmarks only tell part of the story for July. Investors were shifting away from large-cap tech stocks and moving into undervalued smaller stocks.

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Small-cap stocks had their best monthly performance in a long time. The Russell 2000 index soared 10.1% in July, marking its largest one-month gain since December.

Bank of America predicts this “pain trade” will persist as a new month of trading begins.

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“We expect AI to transition from a ‘tell me’ to a ‘show me’ story, with any disconnect between investments and revenue generation to come under increased scrutiny,” wrote strategist Savita Subramanian. She also anticipates that cyclical stocks — those tied to the economic cycle — will outperform moving forward.

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Among the notable analyst calls on Wall Street, Morgan Stanley upgraded GE Vernova to overweight from equal weight.

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“We believe we are at the early stages of a multi-decade energy transition investment cycle that will require significant capital investment in gas power, renewables, and grid expansion/enhancement. GEV, in our view, is the purest way to gain exposure to all three of these investment opportunities,” analyst Andrew Percoco wrote.

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The end of July saw significant market activity and notable shifts in investment trends, underscoring the dynamic nature of the current economic landscape. The performance of smaller stocks and strategic sector upgrades point to evolving investor priorities as they navigate the complexities of the market.

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