Last month’s Broadcast was a halftime report.
At the time, the USMNT was still alive, the World Cup was gathering momentum and hope was doing what hope does: making American soccer fans temporarily irrational.
Then Belgium happened.
A 4-1 loss in the Round of 16 sent the United States home in a manner that can best be described as unceremonious. After years of buildup and an encouraging start to the tournament, the dream of a deep run on home soil ended abruptly in Seattle.
It was disappointing.
The World Cup itself, however, was awesome.
For six weeks, stadiums were packed, schedules were rearranged around afternoon matches and millions of Americans suddenly had strong opinions about teams they had barely thought about a month earlier.
The expanded tournament produced 308 goals across 104 matches and drew a record 6.8 million fans. It concluded with Spain defeating Argentina 1-0 in extra time to win its second World Cup.
Both things can be true.
The team I cared about most disappointed me. The tournament surrounding it was still a tremendous success.
That is also a useful way to think about July’s markets.
July’s Scoreboard
July was not a particularly good month for investors.
The S&P 500 declined 0.1% and the Nasdaq fell 3.2%. The Dow managed a 0.3% gain while international developed markets rose 1.9%. Emerging markets fell 3.3% and the broad U.S. bond market lost 1.3%.
There was no shortage of explanations.
Investors questioned whether the hundreds of billions of dollars being spent on artificial intelligence infrastructure will eventually produce an adequate return. Treasury yields moved sharply higher. Oil briefly climbed above $100 per barrel after tensions in the Middle East escalated. The Federal Reserve left interest rates unchanged amid unusually visible disagreement among policymakers.
In other words, July gave markets a full starting lineup of things to worry about.
The result was increased volatility and a month in which most major investments struggled to make meaningful progress.
But a monthly return is a scoreboard. It tells us what happened over a specific period. It does not always tell us how well the underlying team is playing.
For that, we need to look beneath the final score.
The Better Story Underneath
Corporate earnings were considerably stronger than July’s market returns suggested.
With 61% of S&P 500 companies having reported second quarter results, 86% had exceeded earnings estimates and 77% had surpassed revenue expectations. Both figures were above their respective five-year averages.
The headline earnings growth rate was an extraordinary 47.4%, which would be the strongest year-over-year result since 2021.
That number requires an asterisk the approximate size of a World Cup stadium.
A significant portion of the reported growth came from unusually large investment valuation gains recorded by Alphabet and Amazon. Those gains counted as earnings under generally accepted accounting principles, but they were not generated by the companies’ day-to-day operations.
Remove Alphabet and Amazon and the S&P 500’s earnings growth rate drops from 47.4% to 28.8%.
That is substantially lower than the headline figure.
It is also still an excellent result.
Excluding those two companies, this would still be the second consecutive quarter with earnings growth above 20% and the seventh consecutive quarter with double-digit growth. Revenue growth across the index was also running at 14.1%, with all 11 sectors reporting year-over-year increases.
Analysts did something else unusual during July: they raised their estimates.
Earnings forecasts normally decline as a quarter progresses and optimism meets reality. Instead, analysts increased their third quarter earnings estimate by 0.3% during July and raised their full-year 2026 estimate by 3.2%.
Since the end of June, the S&P 500’s price declined slightly while its forward earnings estimate increased. As a result, the index’s forward price-to-earnings ratio fell from 20.4 to 19.6.
July’s scoreboard was mediocre.
The underlying fundamentals were better.
That does not guarantee that markets will rise next month. It does remind us that stock prices and business progress do not always move together over short periods.
Is the AI Spending Worth It?
Large technology companies are investing hundreds of billions of dollars in data centers, chips, energy capacity and other infrastructure. Data center construction has become a meaningful contributor to economic activity and now exceeds every other category of private office construction.
Investors are reasonably asking when all that spending will translate into profits.
The honest answer is that no one knows yet.
Some companies will almost certainly earn attractive returns. Others will overspend, fall behind or discover that the economic benefits flow somewhere else.
This is not unusual during periods of major technological investment.
Building the railroads transformed the United States, but many railroad investors still lost money. The internet changed almost every aspect of modern life, but many internet companies disappeared. A technology can change the world without every company pursuing it becoming a good investment.
AI may prove enormously important.
That does not mean every AI-related stock will win or that any price is reasonable.
The recent earnings numbers show that technology companies continue generating impressive profits. July’s market reaction shows that investors are beginning to demand more evidence that today’s extraordinary spending will produce tomorrow’s extraordinary returns.
That tension is likely to remain with us.
What 125 Years Can Teach Us
One of the other pieces I read this month examined 125 years of global market history.
Its most important lesson was not a prediction about what comes next. It was a reminder of how difficult it is to remain patient while an investment appears not to be working.
Over the past century, every major investment factor has experienced long stretches of disappointing performance.
Momentum has been the strongest-performing factor in nearly half of the decades studied. Value, meanwhile, produced a negative relative return in almost half of them. Small companies, high-dividend stocks and low-volatility strategies have each experienced their own extended periods near the bottom of the rankings.
Then leadership changed.
What had appeared broken suddenly worked. What had looked unbeatable suddenly struggled.
The same historical analysis raises another important point: investors should be cautious about treating long-term U.S. stock market returns as a promise.
Many financial plans assume that U.S. equities will compound at approximately 8% per year over long periods. That may prove reasonable, but the past four decades benefited from powerful tailwinds, including declining interest rates and rising stock valuations. Those conditions cannot be assumed to repeat indefinitely.
The United States currently represents approximately 62% of the global stock market despite accounting for roughly 36% of global economic output. That does not mean U.S. stocks are destined to underperform. Market concentration has occurred before and today’s technology concentration is not unprecedented when compared with industries such as railroads in earlier eras.
It does mean that investors should maintain some humility.
The lesson from 125 years of data is not that we should abandon U.S. stocks, technology companies or whatever has recently performed well.
It is that no single country, sector or investment style stays on top forever.
Something in the Portfolio Will Always Disappoint You
A properly diversified portfolio will almost always contain something you wish you did not own.
When U.S. technology stocks are soaring, international and value investments can feel unnecessary.
When inflation rises, long-term bonds can feel broken.
When markets become defensive, smaller companies and economically sensitive businesses can struggle.
Then conditions change and the laggards often become contributors.
Diversification does not mean everything rises together. If everything in a portfolio behaves the same way, it probably is not very diversified.
It means owning investments that respond differently to different conditions so the success of the plan does not depend on predicting every market outcome correctly.
The USMNT’s World Cup ended with one bad result.
The World Cup continued and delivered a fantastic tournament.
July’s markets produced a disappointing monthly return.
Businesses continued growing earnings and revenues beneath the surface.
An investment style can spend years looking broken.
That does not necessarily mean it has stopped serving a purpose.
Full Time
The United States did not give us the World Cup ending we wanted.
July did not give investors much to celebrate either.
But the larger picture was better than either final score suggested.
Corporate earnings remain healthy. Earnings expectations are rising rather than falling. Valuations have eased slightly and investors are once again asking reasonable questions about whether exciting technologies justify increasingly large investments.
Meanwhile, more than a century of market history offers the same reminder it always does: leadership changes, averages are not guarantees and patience is rarely tested when everything is going well.
The goal is not to correctly predict every result.
It is to build a portfolio and financial plan that do not require us to.
The USMNT may have crashed out, but the World Cup was still pretty damn great.
Here’s to enjoying the tournament even when our team does not win it.
Until next time, take good care.
