By Christine Idzelis

Tech stocks struggled in July. Will the volatility around the AI trade continue in August?

The S&P 500 remains up this year, but it was weighed down by tech losses in July.

A nasty reversal of the momentum trade in the U.S. stock market in July has led to tumult under the surface of major indexes like the S&P 500 - yet the equal-weighted version of the popular benchmark ended the month with a solid gain.

The Invesco S&P 500 Equal Weight ETF RSP, which equally weights stocks in the index, booked record monthly outperformance versus a popular exchange-traded fund that tracks the technology-heavy Nasdaq-100 index NDX, according to Dow Jones Market Data, citing data going back to 2003. After the Nasdaq-100-tracking Invesco QQQ Trust Series I's QQQ large loss in July, the gain this month for the Invesco S&P 500 Equal Weight ETF saw it outperform that fund by a wide 7.6 percentage points.

Enthusiasm around artificial intelligence had sent some stocks surging too far, too fast this year - and to some extent, that came undone in July.

But there's also more dispersion now in AI-related stocks - including among Big Tech companies that can heavily influence the trajectory of benchmarks like the S&P 500 and Nasdaq-100, said Kevin Gordon, head of macro research and strategy at Charles Schwab, in a phone interview.

In an "AI-dominated world" that's still in its earlier stages, investors should anticipate that such volatile swings may persist. They should consider building diversified portfolios to absorb them, said Gordon.

He pointed to the recent outperformance of the equal-weighted version of the S&P 500 XX:SP500EW as a sign of broader market strength benefiting from a growing U.S. economy and strong corporate earnings.

But volatile pockets of the U.S. stock market saw punishing drops in July. Chip stocks plunged, with the PHLX Semiconductor Index SOX trading down 20.6% this month, according to FactSet data. The fact that the chip index remains up almost 60% this year through Friday underscores the momentum those stocks had before their recent selloff.

Another popular trade that's taken a big hit this month is memory stocks, with the Roundhill Memory ETF DRAM, which invests in such equities globally, slumping 31.8% in July. Within its portfolio, Sandisk's shares (SNDK) plunged 46.6% in July - yet they're still up almost 412% in 2026 through Friday. And Micron Technology (MU) has skyrocketed more than 188% in 2026 despite sliding 28.7% this month, FactSet data show.

Meanwhile, the performance of a relatively small group of Big Tech stocks with massive market values - and outsize weightings in the S&P 500 and Nasdaq-100 - has hardly been uniform. That was evident on the final trading session of the month, as shares of Apple (AAPL) sank while those of Amazon.com (AMZN) and Alphabet (GOOGL) (GOOG) rallied.

On Thursday, Microsoft's stock (MSFT) surged 15.5% to mark the largest daily gain in market value on record for any U.S. company, at $449.7 billion, according to Dow Jones Market Data.

Microsoft shares rose another 3% on Friday, continuing their climb after the company reported earnings earlier in the week. Amazon saw its shares soar 15.3% on Friday after it delivered its earning results after the U.S. stock market's close Thursday.

Major U.S. stock market indexes rose Friday, with the capitalization-weighted S&P 500 SPX beating the equal-weighted version of the benchmark on the back of rallying Big Tech stocks. Amazon was the biggest gainer on the S&P 500, providing a lift for the index.

Still, major benchmarks were mixed in July. The S&P 500 and Nasdaq Composite COMP each fell for a second straight month, while the Dow Jones Industrial Average DJIA tallied a fourth straight month in the green.

While individual investors have sold single stocks at a heated pace this year, including memory stocks, they've been seeking more defensive market positioning through ETFs that provide exposure to baskets of equities, according to a Vanda Research note earlier this week.

Matthew Bartolini, global head of research strategists at State Street Investment Management, told MarketWatch that he sees evidence in the U.S. exchange-traded-fund industry of investors continuing to seek exposure to tech, as many likely expect further AI-linked gains.

As investors entered the last trading day of July on Friday, tech-sector ETFs had attracted strong monthly inflows of around $20 billion through Thursday, he noted. That blew away the next biggest sector inflow, financials, which had received around $3 billion this month through July 30, according to Bartolini.

AI is still in the early phase of its promised transformation of the economy, with many investors expecting the technology to ultimately bring about a productivity boom, he said. With that transformation underway, volatility in the market is likely to continue as individual winners and losers more clearly emerge, said Bartolini.

July wrapped up with the Invesco S&P 500 Equal Weight ETF seeing a monthly gain of 1.1% - outperforming the Vanguard S&P 500 ETF VOO, which nearly finished flat, along with the Nasdaq-100-tracking Invesco QQQ Trust Series I, which dropped 6.6%, according to FactSet data.

"The momentum unwind is central to all of this," said Gordon. And as some pockets bounce back, beware that "some of the strongest days do happen in downtrends," he added - meaning investors should consider the chances of "catching a falling knife," and look to remain diversified.

-Christine Idzelis

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08-01-26 0700ET