July 2026 Monthly Review

A Look Back

The above title was a song recorded by country artist Billy Currington. It was released in 2009, and People Are Crazy became his third #1 hit and was nominated for “Song of the Year” at the 2010 Country Music Awards. It details the chance encounter of a younger guy and a divorced war veteran. As they talked for hours, the older, wiser man says, “God is Great, beer is good…and people are crazy.” The song has an upbeat, whimsical melody and as I heard the chorus, I thought how true that line is and how the crazy part can apply to our financial markets. We saw that play out in the month of July as most stocks in the NASDAQ, and especially those associated with Artificial Intelligence took it on the chin. Although still up a healthy 20.86% in the last year, the tech-heavy index was down over 3% for the month. We now know the main culprit. A hedge fund named Situational Awareness, which is managed by 24-year-old whiz kid Leopold Aschenbrenner, saw their assets shrink from $45 billion at the end of June to around $10 billion at the end of July after a forced sale of most of his AI-heavy portfolio to industry giant Citadel. The cliff note version of the story is that the young investor was performing famously for his clients...until he wasn’t. Importantly, he was heavily leveraged. Initial reports indicate he was over 400% leveraged…borrowing money to invest more in the same stocks. And that is where the crazy comes in. We have seen the story play out throughout stock market history. There tends to be a couple of common denominators in the bigger blowups we’ve seen in the financial markets over the last several decades…unbridled hubris, or thinking that “I’m right, and will continue to be right” and leverage. It’s not enough to take a dollar and invest in your best ideas. Let me borrow $4 or $5 and make the same bet. Historically, the market usually penalizes such actions eventually. And so, it was for this hedge fund in July. The result was intense selling of those stocks as market participants became aware of the predicament and pushed those stocks even lower until the forced sale…People are indeed crazy to not learn the lessons of the past. The large-cap S&P 500 was basically flat in July and is still up over 10% for the year. As longer-term rates edged higher, core bonds were down 1.30% and are now negative for the year. In contrast, Commodities and Bitcoin enjoyed strong monthly returns, up 12.5% and 7.3%, respectively.

A Look Ahead

The Fed met in late July and left the Fed Funds rate unchanged. However, the vote was not unanimous with three members voting for a quarter point hike. This marks a departure from the recent 12-0 votes on interest rate policy and signaled the stronger possibility of a rate hike in the very near future. In general, the financial markets would rather see short-term interest rates slide lower from their current 3.50-3.75% level. Cheap money is historically better for stocks. Corporations and individuals can borrow money at lower levels to spend and invest and keep the economic engine humming. The Fed has said that it would like to see the bellwether rate at around 2.5%, however they are concerned about stubborn inflation…and perhaps hesitant to misstep with a too-early cut and have to reverse course to fight off inflation. I thought it was important to highlight the above story because it is those types of events that can act as a trigger for market selloffs…especially when overall valuations are stretched. The markets recovered nicely on Thursday and Friday of last week and are starting off strong on the first trading day of August. We are now less than 1% off all-time highs in the S&P 500. With that, we are constructively cautious. We have trimmed gains when possible to get neutral in our allocations…and are determined not to be crazy!