The Bubble Popped — And the Market Looks Healthier For It

July 2026 | Monthly Commentary

The past couple of months had been shaky. Macro concerns were not resolving, and margin debt had climbed to a level where the leverage and speculation in this market had become genuinely worrisome. July seemingly resolved that tension — not gently, but thoroughly. A great deal of froth appears to have come off, and what is left underneath looks more durable than what came before it.

The Setup: Leverage at Record Levels

Margin debt — money borrowed against brokerage accounts to buy more securities — had reached roughly $1.42 trillion as of May, a record. Rising margin debt is not a timing tool, but it does describe how much leverage is embedded in the market. When it climbs this far, declines tend to be amplified, because leveraged positions are often among the first to be sold.

June is the month more commonly associated with summer pullbacks. This year June held up, and the pullback arrived in July instead. In the process, a substantial share of that leverage was unwound. Margin debt remains historically elevated, but it appears meaningfully less stretched than it was 60 days ago.

Where the Air Came Out: Semiconductors

The speculation was concentrated, and it showed. Semiconductors — a group that had grown to roughly a fifth of the S&P 500 by weight — declined about 30% from their highs during the month. When a sector that large moves that far, it likely accounts for much of the day-to-day volatility investors experienced in July.

The same pressure showed up overseas. South Korea is home to the world’s two largest memory manufacturers, and its market index fell roughly 35% over the same stretch — a reminder that the memory trade had become a global one.

The clearest measure of how much speculation had built up is what happened to the leveraged instruments tied to the trade. Leveraged semiconductor ETFs, which are designed to deliver roughly three times the daily move of the underlying index in either direction, declined approximately 70% during the month.

Investors have been asking whether the bubble is going to pop. In this corner of the market, it arguably already did. An estimated $60–100 billion left leveraged ETF products over the month. That is what a speculative unwind tends to look like, and the leverage picture appears considerably less concerning today than it did in June.

The Other Side of the Barbell: Earnings

While prices were correcting, the fundamental picture did the opposite. Consensus earnings estimates for the S&P 500 have continued to climb, and forward estimates for 2026 and 2027 keep moving higher. It is harder to build a durable bearish case while corporate profits are still growing at this pace.

One company illustrates the scale of what is happening in this cycle. Consensus estimates put Micron’s net income near $197 billion for its 2027 fiscal year. Across the previous twenty-one fiscal years combined, the company earned roughly $119 billion. This is estimated, after-tax profit — not projected revenue or a promise of future demand.

The Red Line Held

The Red Line — the 200-day moving average — is our long-term trend reference. Through all of July’s volatility, both the S&P 500 and the Nasdaq 100 remained above it. There was a visible shakeout mid-month, but neither long-term trend signal turned negative.

The shorter-term momentum trend tells the more interesting story. It did turn negative for roughly two weeks, which is not surprising given the scale of the rotation taking place beneath the surface. It has since recovered, and both indexes are back in favorable territory based on current trends.

The Nasdaq appears somewhat less robust than the S&P 500 here, which is consistent with leverage still working its way out of the most speculative names.

The Macro Backdrop Improved

Volatility stayed contained throughout. Despite the size of the moves in individual sectors, the VIX gave no indication of broad market stress.

The U.S. dollar is the development that may matter most. We have flagged the 100.50 level repeatedly as the point at which dollar strength begins withdrawing liquidity from markets — and markets depend on liquidity. Over the past several weeks the dollar has pulled back sharply from that zone. Improving liquidity conditions appear to be part of why trends have strengthened so broadly.

The 10-year Treasury yield remains higher than we would prefer. We would like to see it below 4.50%. It has come off its highs, which is constructive, and as long as it stops making higher highs the backdrop remains workable. Meaningful further declines in rates likely require oil prices to soften.

Participation Is Broadening

This may be the most encouraging development of the month. For a long stretch, this market’s advance depended on a narrow group of technology names. That is no longer the case.

Large-cap value has been making higher highs and higher lows, with a favorable momentum trend.

The Dow currently looks stronger than the S&P 500, which in turn looks stronger than technology. Financials, industrials and even base metals have been acting well.

Small caps saw a shakeout along with everything else, and their trend has returned to favorable.

International markets appear to be breaking out of a long-term base — a development that has been a long time coming.

For the first time in a long while, the Dow, the S&P 500, the Nasdaq, small caps and international markets are all in favorable trends simultaneously. Narrow leadership has historically left markets more fragile, while broader participation has tended to give an advance firmer underpinnings. Based on current trends, this appears to be the healthiest breadth picture in some time.

The M5 Momentum Model — August Rankings

The M5 is our momentum ranking model, maintained for research purposes. It scores a broad universe of large-cap U.S. equities and surfaces the five names ranking highest on momentum for the coming month. This month’s rankings show considerable continuity, which is typical when trends are intact — the model is designed to let a trend develop rather than trade around it.

Micron (MU) — Corrected sharply with the semiconductor group, then bounced from its lows. The long-term trend appears intact and the earnings trajectory has been exceptional.

Intel (INTC) — A rough patch alongside the rest of the group, though the company reported earnings during the month with substantial bottom-line growth.

AMD (AMD) — Currently appears the strongest chart of the three semiconductor names in the rankings, though still repairing damage from the selloff.

Applied Materials (AMAT) — A similar pattern to its peers; these charts largely overlay one another this month.

JPMorgan Chase (JPM) — Rotated into the rankings this month, and a direct reflection of the broadening described above. Bank balance sheets appear healthy across the group. It is historically difficult for markets or the economy to deteriorate badly while the financials look this constructive.

The M5 model is a momentum ranking framework maintained for research purposes. Rankings are not investment recommendations and do not represent an account, portfolio or trading activity. Securities shown may not be suitable for any particular investor.

What We’re Watching

Margin debt. Much improved, but still near record levels in absolute terms. It stays on the list.

Whether the broadening holds. If value, the Dow, small caps and international markets maintain their trends alongside the major indexes, the foundation for this market would appear considerably stronger than it has been.

Technology’s relative strength. Technology does not need to lead for markets to advance, but we would prefer to see it rejoin the leadership rather than continue to lag.

The 10-year yield and oil. Below 4.50% would be constructive. That likely requires softer oil prices.

The dollar. Its pullback appears to have been a meaningful tailwind for liquidity. A sustained move back toward prior highs would change that assessment.

The froth that concerned us appears to have largely come out of the market. Earnings have continued to climb, liquidity conditions have improved, and participation has broadened materially. Based on current trends, the setup appears more constructive than it has in some time.

Frequently Asked Questions

What caused the semiconductor selloff in July 2026?

The decline appears to have been driven primarily by an unwind of leverage rather than a deterioration in fundamentals. Margin debt had reached record levels and speculation had concentrated heavily in semiconductor and memory-related names. Semiconductors fell roughly 30% from their highs during the month, while leveraged ETFs tracking the group declined approximately 70%, suggesting the selling was concentrated in the most heavily leveraged positions.

Is record margin debt a warning sign for the stock market?

Elevated margin debt is not a reliable timing signal, but it does describe how much borrowed money is supporting market prices. High leverage tends to amplify declines, because leveraged positions are typically sold first. Following July’s decline, a substantial portion of that leverage was worked off, which generally leaves a market on more stable footing.

What is the Red Line?

The Red Line refers to the 200-day moving average, which we use as a long-term trend reference. When an index trades above it, the long-term trend is generally considered favorable. Both the S&P 500 and Nasdaq 100 remained above their 200-day moving averages throughout July’s volatility.

Why does broadening market participation matter?

When market gains depend on a small number of stocks, the advance is vulnerable to weakness in those names. When participation broadens across sectors, market capitalizations and geographies, the advance rests on a wider base. As of early August, large-cap value, the Dow, small caps and international markets were all in favorable trends alongside the S&P 500 and Nasdaq.

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