At various points during July, it started to feel like markets were finally going to break. After months of defying negative headlines and ominous signals, this seemed to be the window for the correction many had been waiting for.\u00a0Yet, it never really played out that way.<\/p>\n
As usual the bond market caught on to this first.\u00a0This was supposed to be the year that saw bond yields fall, but instead they have rallied. Sticky inflation due in part to higher oil prices is making it difficult for yields to decline, which is a problem.\u00a0The longer yields stay elevated the more impact they may have on consumer spending and corporate profit margins.\u00a0For earnings to really take off, interest charges need to decline.<\/p>\n
This has become the issue for the new FOMC Chair who is officially in a bind.\u00a0He was appointed with the understanding that rate cuts were the first priority, but that is increasingly harder to implement.\u00a0Even with recent inflation readings more muted, this remains an issue. Elevated inflation combined with equity indices at all-time highs is more often the backdrop for rate-hikes, not rate cuts.<\/p>\n
Which is what equity markets woke up to mid-month.\u00a0Renewed hostilities between the US and Iran caused Brent Oil to surge over $100 a barrel.\u00a0The US 10-year yield took notice and hit a high for the year.\u00a0At the same time corporate earnings were being reported, and following record results from the banks,\u00a0the first few earnings reports from the large technology companies were below expectations.\u00a0After a few quarters in which increased spending on AI was cheered,\u00a0investors began to ask about the return on investment.<\/p>\n
The trigger that caused the initial market drop came out of Asia.\u00a0Semiconductor and memory chip stocks have surged to start the year as these tools are key components for AI data centres.\u00a0However, as we normally witness during manias, speculative activity takes over and FOMO trading replaces fundamental investing. Add to this the rise of double and triple levered single stock ETFs and you get some wild swings.\u00a0Look no further than the price action of the KOSPI Index.\u00a0The Korean market is heavily weighted to semiconductors companies.\u00a0At one point during June the Korean index was higher by nearly 130% for the year,\u00a0but gravity caught up as it collapsed 40% during July.\u00a0In our view, moves such as these are things you see closer to market tops and not bottoms.<\/p>\n
The month also saw a classic hedge fund blow up which added to the late month volatility.\u00a0The aptly named \u2018Situational Awareness\u2019 fund got caught on the wrong side of the semiconductor trade,\u00a0and as that trade unwound it was forced to liquidate positions to rival funds on the last trading day of the month.\u00a0These events are not uncommon but can exacerbate a move when they happen after extreme moves, and during low volume summer months.<\/p>\n
But even with these headline events,\u00a0the month finished relatively flat, which should be looked at as a win.\u00a0Equity markets continue to \u2018climb the wall of worry\u2019 and remain near all-time highs.\u00a0With valuations of several sectors at record levels we need to see earnings continue to grow for markets to move higher.\u00a0So far this has been the case, but the debate is how long that can last.<\/p>\n
The bull case for equities is for a rotation between leading and lagging sectors to propel the overall market higher.\u00a0But we remain a headline (or X post) away from a drop.\u00a0We need to continue to monitor oil prices and yields.\u00a0Equity markets have been looking over the near-term spike as temporary, while bond investors have turned cautious.\u00a0Which of these groups is correct will be the story of the balance of 2026.<\/p>\n
As we enter the two most volatile months of the year, investors that follow seasonal patterns would be tempted to begin to become more defensive.\u00a0A lot of good news appears to be priced into valuations at these levels, and heading into uncertain FOMC meetings and a US election, the risk is that things are not as rosy as they appear.\u00a0In a year that is not playing out according to anyone\u2019s expectations, the path forward remains uncertain.\u00a0But there will be opportunities, it just may not be everyone is looking.<\/p>\n
Greg Taylor, CFA At various points during July, it started to feel like markets were finally going to break. After months of defying negative headlines and ominous signals, this seemed to be the window for the correction many had been waiting for.\u00a0Yet, it never really played out that way. As usual the bond market caught on to this […]<\/p>\n","protected":false},"featured_media":70750,"template":"","meta":{"_acf_changed":false},"fund-type":[134],"class_list":["post-74270","commentaries","type-commentaries","status-publish","has-post-thumbnail","hentry","fund-type-market-insight"],"acf":[],"yoast_head":"\n
\nAugust 7, 2026<\/em><\/p>","protected":false},"excerpt":{"rendered":"