① In the first six months of this year, one of the worst-performing Sectors in the S&P 500 Index, the Energy Sector, made a leap to become the best-performing Sector in July; ② Meanwhile, the Communication Services Sector, which was the second-best performer in the first half, has now become the worst-performing Sector so far this month.
According to a report on July 11 from Caixin (Editor: Xiaoxiang), behind the continuous new highs of US stocks in July, there is actually a significant transformation quietly taking place: some of the worst-performing Stocks in the first half of the year are now leading the rally, while some of the original leaders are gradually losing favor.
There are signs that investors are taking profits and shifting towards poorly performing Sectors, which has driven the rotation between different Sectors:
In the first six months of this year $S&P 500 Index (.SPX.US)$ one of the worst-performing Sectors, the Energy Sector, made a leap to become the best-performing Sector in July. Meanwhile, the Communication Services Sector, which was the second-best performer in the first half, has now become the worst-performing Sector so far this month.
In the first six months of this year 
Coincidentally, according to data from Bespoke Investment Group, there are clear signs in the Russell 1000 Index that considerable funds are shifting from the best-performing stocks of the first half to the worst-performing stocks.
The 20 worst-performing stocks from the first half have risen by 5.4% in the July market as of the 8th, while the 20 best-performing stocks from the first half have dropped by 2.1%.
Regarding the rotation phenomenon at the beginning of the second half of the year, Sameer Samana, Global Head of Equity and Real Assets at Wells Fargo & Co, stated: ‘From a macro perspective, we believe that some themes are somewhat overheated, such as expectations for artificial intelligence, a weaker dollar, declining long-term interest rates, and the possibility of rate cuts within the year. It seems we are at least on the brink of profit-taking, but this could also evolve into a comprehensive reversal.’
What has caused the rotation in the US stock market?
Overvaluation is clearly part of the reason for the market’s rotation.
Data compiled by Goldman Sachs shows that the Industrial Sector was the biggest winner in the US stock market in the first half of this year, but in July its performance lagged behind sectors such as Energy and Materials, and its current PE relative to the S&P 500 Index is in the top 2% of observations over the past 20 years.
Analysts at Goldman Sachs wrote in a report released on Wednesday, ‘Most companies in the industrial sector are overvalued, and our model indicates the likelihood of this sector outperforming the market is the lowest in the next six months.’
In contrast, the valuation multiple of the Energy Sector relative to the S&P 500 Index is currently hovering near the low end of the historical bottom third percentile.
Overall, unpredictability has been a major theme in the U.S. stock market since the beginning of this year. From the rise of DeepSeek to the constantly changing trade agenda of President Trump, these factors have successively put pressure on the S&P 500 Index. However, the Index ultimately achieved a V-shaped reversal by the end of the first half and reached new historical highs.
After experiencing a strong three-month rally, Irene Tunkel from BCA Research stated that it makes sense for investors to “lock in” profits before the summer holiday.
“At the same time, the economic fundamentals remain robust, and investors are more willing to turn to cheaper, more economically sensitive sectors such as energy, materials, and transportation,” Tunkel added, “The tax reduction measures embedded in the Inflation Reduction Act also provide support for the consumer and industrial sectors.”
Of course, even though the strength patterns among different sectors in the market since July seem to have reversed compared to the first half of the year, what remains unchanged appears to be the strength of the U.S. stock market since the second quarter. As of Thursday’s close, the S&P 500 Index has risen 1.22% during the rally so far in July.
Previously, it was introduced that in the U.S. stock market, July has almost become a “must-rise” month in recent years. Over the past decade, the S&P 500 Index has shown an upward trend in July without exception, with an average increase of 3.35%.
Editor/rice
Read More: Is the US stock market's July landscape quietly undergoing a major shift?
