Momentum reverses, but retains its lead

Looking ahead, the key question is whether momentum can regain its footing after July's stumble. If volatility persists — whether driven by interest rates, economic data, geopolitics, investor positioning, or something else — momentum and other top-performing factors could remain vulnerable to further mean reversion in the months ahead.

July was a challenging month for markets, marked by ongoing Middle East tensions, a jump in yields, a sharp tech selloff, concerns about AI spending, a bear market in chip stocks, and a rotation away from some of this year's biggest winners.

The Dow .DJI managed a modest gain, while the S&P 500 .SPX edged lower. Small-cap and technology stocks struggled, with the Russell 2000 .RUT and Nasdaq .IXIC both falling more than 3%. Energy .SPNY was the best-performing S&P 500 sector, while technology .SPLRCT was the weakest. Meanwhile, the PHLX Semiconductor Index .SOX plunged more than 20%, its biggest monthly drop since October 2008.