August market outlook after July volatility and tech rotation

The S&P 500 closed July 0.1% lower, marking its second straight monthly decline, while leveraged‑ETF assets shed more than $60 bn since June, a shift that Citadel Securities says should help stabilize August markets【1†L1-L4】【1†L15-L18】.

Technical reset and leverage pull‑back

Citadel’s head of equity strategy, Scott Rubner, argues the July turbulence was a “technical reset” driven by rotation out of over‑heated tech themes, deleveraging, and a move toward fundamentals rather than a macro‑driven downturn【1†L7-L9】. Retail traders trimmed high‑growth tech positions after the swing, and net selling in risky leveraged ETFs removed a major source of market leverage, with technology‑focused leveraged funds down roughly 40% and semiconductor‑focused funds nearly 55% over the past month【1†L13-L16】. This reduction in systemic leverage aligns with the broader market’s lower volatility on the index level, even as individual stocks continued to swing sharply.

Earnings strength and forward outlook

Despite the volatility, earnings expectations have risen sharply. Consensus forecasts for second‑quarter S&P 500 earnings growth have jumped from 22.4% at the start of the reporting season to about 45% today, one of the strongest earnings seasons outside of post‑recession recoveries【1†L22-L24】. Rubner notes that companies are not just beating estimates more often but are doing so by larger margins, reinforcing a fundamentals‑driven narrative for August. Meanwhile, CNBC’s Adam Parker warns that the market still demands “more diversified than normal” portfolios, citing stocks like Micron, Nvidia, UnitedHealth and Merck as potential stabilizers amid continued geopolitical and inflation concerns【2†L9-L14】.

Global stress signals

Outside the U.S., a severe market crash in South Korea—where the Kospi fell nearly 40% in five weeks—highlights the risks of debt‑fuelled tech booms. Retail investors there had poured roughly 14 trillion won ($9.7 bn) into single‑stock leveraged ETFs before the collapse, underscoring how leveraged exposure can amplify downturns【3†L24-L27】. While the Korean episode is not directly linked to U.S. market moves, it serves as a cautionary backdrop for investors monitoring leverage levels worldwide.

What to watch

• U.S. inflation data: The next CPI release (scheduled for early September) will test whether the Fed is “behind the curve” on price pressures, a factor that could reignite volatility.
• Corporate earnings: Watch the upcoming earnings reports of major tech and semiconductor firms; a miss could reverse the earnings‑growth narrative.
• Leveraged ETF flows: Continued outflows or inflows in leveraged ETFs will signal whether market participants are re‑building or further shedding systemic leverage.

The July turbulence appears to have cleared excesses and reduced leverage, setting the stage for a more fundamentals‑focused August. Yet the interplay of global debt‑driven crashes and lingering geopolitical risks means the market’s direction remains contingent on upcoming data and earnings outcomes.