In premarket trading on Wednesday (Aug 5) Eastern Time, futures for the three major US stock indices diverged: Dow futures edged up 0.2%, S&P 500 futures were nearly flat, and Nasdaq 100 futures fell 0.3%. Investor sentiment turned cautious as late earnings season results vied with Fed policy outlook. More notably, fund flows showed a subtle shift—tech stocks are losing favor while energy stocks are seeing a long-awaited inflow.

Fund Flow Data Shows Sector Rotation Accelerating

According to Goldman Sachs' latest global fund tracking report, tech sectors in US equity funds saw about $4.5 billion in net outflows in the week through Aug 4, the largest weekly loss in five weeks. Meanwhile, energy attracted about $1.2 billion in net inflows, adding positions for a third straight week—the longest inflow streak since Q1 2025.

High Valuations and Profit-Taking Are Key Drivers

Analysts note that tech valuations are at historic highs. The S&P 500 information technology index trades at 32 times earnings, well above its five-year average of 26. As Q2 earnings season winds down, many large tech firms posted strong results but saw "sell-the-news" pullbacks, suggesting some institutional investors are cashing out.

For example, AI chip leader NVIDIA hit new highs after earnings but saw insider selling last week, drawing market attention. Meanwhile, Apple fell for two straight days under EU antitrust scrutiny, also weighing on tech stocks.

Oil Price Rebound and Geopolitical Risks Fuel Energy Stocks

Energy's rise is no accident. With Middle East tensions escalating, WTI crude climbed back above $85 a barrel and Brent returned to over $88. Falling US rig counts intensified supply-tightening expectations, making energy a safe haven for funds.

Within the first half hour of trading, Exxon Mobil rose 1.8% and Chevron gained 1.5%, leading the market. The S&P 500 energy index advanced 2.1% intraday, the best-performing sector.

How Should Investors Read This Fund Shift?

BlackRock's strategy team said in a recent report that the rotation from growth to value may just be beginning. Historically, when the Fed ends its hiking cycle and enters a rate plateau, defensive sectors like energy and utilities tend to outperform. With market odds for a September rate cut now below 50% and inflation still sticky, funds are tilting toward undervalued assets.

• Tech stocks may stay volatile in the near term; investors should avoid chasing overvalued names with excessive P/E ratios.
• Energy stocks benefit from supply-demand dynamics and can be a core holding, but watch for oil price volatility.
• The broader US market's medium-term trend remains bullish, but sector rotation will intensify, so a balanced strategy is advisable.

Intraday: Dow Leads, Nasdaq Weakens

As of 10 a.m. ET, the Dow Jones Industrial Average rose 180 points, or 0.5%, to 42,350; the S&P 500 edged up 0.1% to 5,780; and the Nasdaq fell 0.4% to 18,650. The divergence reflects funds rotating out of tech and into traditional industries.

Among individual stocks, besides strong energy shares, utility NextEra Energy rose 1.2%, showing a clear defensive stance. Large tech names like Microsoft and Alphabet fell 0.5% and 0.8%, respectively.

Outlook: Nonfarm Preview and Fed Speakers

Looking ahead, markets will closely watch Thursday's initial jobless claims and Friday's July nonfarm payrolls. Strong jobs data could reinforce expectations of delayed Fed rate cuts, but it would also signal a healthy economy. Analysts caution that funds tend to trim high-volatility assets before the data, so near-term swings are likely.

Overall, the latest fund flows show the market is shifting from tech-led gains to broader sector rotation. For investors, adjusting positions to balance growth and value could be a key strategy for the second half.