Wall Street ended July with a bang that turned a volatile month into a winner. The S & P 500 rallied 1.6% on Wednesday for its best daily performance since late February. That rally erased the broad market index’s monthly losses, leading it to end the month up 1.1%. The Nasdaq Composite surged 2.6%. Those gains came as results from Advanced Micro Devices jolted a recently beleaguered chip sector. The stock popped 4.4% on the back of better-than-expected second-quarter earnings and revenue. That move sparked a 12.8% pop in artificial intelligence darling Nvidia — its biggest one-day gain in six months. But investors just look at the major stock benchmarks missed the real story of the month: Investors were rotating out of large-cap tech stocks and into beaten-down smaller names en masse. Small caps enjoyed their best monthly performance in a long time last month. The Russell 2000 soared 10.1% in July, its biggest one-month gain since December. .RUT YTD mountain Russell 2000, year-to-date Bank of America thinks this “pain trade” will continue as a new month of trading kicks off. .RUT .SPX 1M mountain Russell 2000 vs S & P 500 in past month “We expect AI to transition from a ‘tell me’ to a ‘show me’ story, with any disconnect between investments and revenue generation to come under increased scrutiny,” wrote strategist Savita Subramanian. She also expects the cyclical stocks — that is, names tied to the economic cycle — to outperform going forward. Among the big analyst calls on Wall Street this morning, Morgan Stanley upgraded GE Vernova to overweight from equal weight. “We believe we are at the early stages of a multi-decade energy transition investment cycle that will require significant capital investment in gas power, renewables, and grid expansion/enhancement. GEV, in our view, is the purest way to gain exposure to all three of these investment opportunities,” analyst Andrew Percoco wrote.