On the last Friday of July, the joke on Wall Street trading desks was that the market had decided to sell its semiconductors and buy ketchup. The Nasdaq Composite had fallen 3.2% for the month, the Nasdaq 100 had dropped more than 7%, its worst month since March 2025, and the iShares Semiconductor ETF had lost 22.1%, its steepest monthly decline since December 2002. Consumer staples, utilities and health-care funds, the defensive corners of the market, outperformed.
The rotation looked like a textbook case of investors fleeing the artificial-intelligence trade. The fund-flow data told a different story. Technology ETFs took in roughly $19 billion in July, even as the stocks they hold fell out of bed, according to fund-flow trackers. Investors did not sell the AI trade; they bought it on the way down.
The divergence between prices and flows is one of the more curious features of a month that broke a long run of July gains. The S&P 500 fell 0.1% in July, its first decline in that month since 2014 and the end of an 11-year streak of July advances. The Dow Jones Industrial Average rose 0.3%. An equal-weight version of the S&P 500 gained about 1.1% and beat the cap-weighted index, evidence that the rally broadened away from the megacap technology names that had driven it for two years.
Yet the money kept coming into tech. Retail investors who buy in monthly increments rarely react to short-term swings, fund managers said, while institutional investors had already begun trimming before the slide, according to people familiar with the positioning of large asset managers. The result was a month in which the market’s biggest winners of the past two years, Nvidia, AMD, Broadcom and the suppliers that feed them, gave back a chunk of their gains while the funds that track them collected fresh cash.
The pattern is familiar from previous drawdowns. Flows follow performance with a lag, and a similar disconnect appeared in the summer of 2024, when a sharp selloff in chip stocks during a single week pulled the Nasdaq down before fresh inflows pushed it to new highs within months. What is different this time is the scale of the move. A 22% monthly decline for the semiconductor benchmark is the kind of event that normally forces investors to ask whether the underlying story has changed.
The question now is what the gap means. Some strategists said the inflows were a sign of staying power, with investors treating the pullback as a discount on a long-term theme. Others warned that persistent inflows into falling funds can mask deterioration, since fund managers are forced to hold cash or buy dips even as the fundamental case weakens. Both views contain some truth, and the two groups are not evenly matched: the inflows, by most accounts, came disproportionately from retail accounts and 401(k) plans, while hedge funds and proprietary desks were net sellers of chip stocks during the month.
Valuations complicate the picture. Even after July’s slide, the semiconductor ETF was up 67.7% for the year, a sign of how far the sector had run before the pullback. The equal-weight S&P 500 ETF gaining ground while the cap-weighted index fell suggests money is rotating within equities rather than leaving the market altogether, a classic sign of a bull market maturing rather than ending, in the view of some portfolio managers.
The “sell semiconductors, buy ketchup” meme captured the mood of a month in which defensive stocks outperformed for the first time in years. But flows suggest a more measured response. The cash that left chip stocks largely stayed inside technology, shifting toward software and cloud names that had lagged the AI rally, fund-flow data show. The rotation was real, in other words, but narrower than the price action suggested.
What comes next depends on earnings. The companies at the center of the trade reported in the first days of August drew sharply different reactions from investors, with Palantir’s shares surging 29% while AMD and SpaceX fell after hours despite strong results. Nvidia reports later this month, and its outlook will determine whether the semiconductor trade can reclaim the momentum it lost in July. If flows keep rising while prices fall, the gap between what investors say and what they do will widen. For now, the money that left the chip trade appears to have found its way back into technology almost immediately, a signal that the AI trade, for all the pain of July, has not lost its hold on the investing public.
Fund-flow data have their own distortions. The July figure counts money entering ETFs but not when it arrived, and part of the inflow may reflect investors rebalancing portfolios that had grown overweight technology after two strong years. Whatever the mix, the flows show the retreat from AI was never as total as the price action suggested.
