Five for Friday – July 24, 2026

Market Moves, IPOs, Seasonals, Diversification, and Water

1. Churn

What’s that saying about ducks paddling? Calm on the surface but chaos underneath? That’s been the stock market this summer. Since the S&P 500 hit a new record on June 2, the Magnificent 7 is down 4%, semi-conductors (the market’s biggest industry) are down 9%, and memory stocks are down 17%. Yet the overall market is within a hair’s breadth of its early summer peak because other areas like banks (+14%) and pharmaceuticals (+10%) have stepped up while the tech high-flyers take a breather. The S&P 500 Equal Weight – “the average stock” – has outpaced the main index, and correlation (the degree to which stocks move together) is at 30-year lows.

But why did chip stocks fall so fast in the first place? Truth is, it’s a bit of an unknown. A selloff doesn't require that investors think the economy is weakening or profits are about to crash. Sometimes investors decide to lock in gains, reduce risk, or rebalance portfolios. This sort of consolidation is especially possible in markets like today’s: on the heels of a sharp rally, with good news and high expectations already reflected in the price, and a lot of money concentrated in the same leaders. In such a world, the market can simply run low on new buyers for a time (and volatility is often amplified by trend-following funds cutting exposure or forced selling by leveraged investors). And yet money isn’t leaving stocks; it’s shifting into new opportunities – and a rotating cast of winners is a sign of market strength, not weakness.

 2. Bubbly

It’s also a healthy sign when “bubbly” assets get gut-checked without much damage being done to the broader market. A muted IPO market also suggests investor exuberance has yet to reach 1999-like extremes.

3. Fall

Of course, even in healthy markets, investors should expect pullbacks – and maybe even more so at this time of year. Seasonality is far from a forecast, but over the last 75 years, August-September is the only two-month stretch across to average a negative return. As usual, prepared investors are less likely to be surprised. 

4. Diversify

Last week, I made a pitch for a more proactive look at diversification. In an era of high concentration and fast-moving markets, owning a bunch of stocks via a fund (particularly a cap-weighted, passive fund) isn’t necessarily actual diversification. For instance, the MSCI Emerging Markets Index (which has $1-2 trillion benchmarked to it and claims to capture “large and mid-cap representation across 24 countries”) has over 50% of its weight in Taiwan and Korea – with nearly one-third of its portfolio in AI behemoths Taiwan Semi, Samsung, and SK Hynix. What was once a bet on emerging nations benefiting from better demographics and faster growth has morphed into a momentum and AI play. Then there’s bonds. Passive bond indexes are often “market-value weighted,” meaning issuers with more debt outstanding get larger weights. As Big Tech leaders borrow more and more to fund data centers and AI infrastructure, bond indexes gain more exposure to that sector…and its implied bets on AI. None of this is a bad thing – markets are dynamic and rewarding winners often benefits investors. But over the long haul, we can benefit from knowing where our concentrations lie.  

5. On this day

 in 1880, the world’s first commercial hydroelectric power plant began generating electricity in Grand Rapids, MI. While hydro’s share of American electricity generation has come down in recent decades (now just ~6% of the U.S. total), it was one of the most vital early sources of scalable, low-cost power and a major driver of economic growth (including via New Deal programs like the TVA). Today, hydropower is estimated to generate ~14% of global electricity.  

Disclosures

This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. Market and economic statistics, unless otherwise cited, are from data provider FactSet.

This report does not provide recipients with information or advice that is sufficient on which to base an investment decision.  This report does not take into account the specific investment objectives, financial situation, or need of any particular client and may not be suitable for all types of investors. Recipients should not consider the contents of this report as a single factor in making an investment decision. Additional fundamental and other analyses would be required to make an investment decision about any individual security identified in this report.

For investment advice specific to your situation, or for additional information, please contact your Baird Financial Advisor and/or your tax or legal advisor.

Past performance is not indicative of future results and diversification does not ensure a profit or protect against loss. All investments carry some level of risk, including loss of principal. An investment cannot be made directly in an index.

Copyright 2026 Robert W. Baird & Co. Incorporated.

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