Savvy Portfolio Perspectives | July 2026

"Well, that escalated quickly"

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Executive Snapshot

The Verdict

Anchorman’s Ron Burgandy might agree when we say that volatility in the markets briefly got out of hand, real fast. 

The semiconductor sell-off over the past month served up a jolt of intraday volatility that felt far more alarming in the moment than it looks in the rear-view mirror. The market's biggest winners, semiconductors above all, sold off sharply and dragged the broad index lower. As we noted in our June 2026 Global Markets Update, evolving expectations around a more hawkish Federal Reserve under a potential Warsh chairmanship were an important catalyst for this repricing. Step back from the tape, though, and the episode looks less like a macro shock than a change in market leadership: primarily a rotation trade rather than a broad risk-off event. The fundamental backdrop did not deteriorate. Growth remained firm, with high-frequency activity data continuing to run at a pace consistent with above-trend 2% year-over-year growth. Meanwhile, the disinflationary impulse strengthened, concerns over an increasingly hawkish Fed reaction function faded, and systemic stress stayed low. 

We made no tactical allocation changes this month, and we read the semiconductor sell-off as a rotation within an ongoing bull market rather than the onset of risk-off. We continue to view the environment as one of ongoing expansion rather than late-cycle contraction.

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Portfolio Stance

• Overweight equities, with a continued preference for U.S. large caps
  
  • Equal-weight (RSP) exposure broadens participation and reduces concentration.
  • Sector tilts held: Technology, Consumer Discretionary, and Utilities, with the Technology overweight reaffirmed through the semiconductor pullback
  • Emerging markets slight overweight
  • U.S. small caps and international developed markets neutral, but accretive to portfolio performance.
• Underweight fixed income
  
  • Neutral investment grade, and international developed, underweight high yield.
• Neutral commodities

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Core Driver

The primary driver remains the combination of resilient growth and still-accommodative financial conditions, now reinforced by a Fed that has backed away from the more hawkish path markets feared in June. Our framework continues to point to a "reflation with a Goldilocks bias" environment: growth is resilient, inflation is decelerating from a high level, financial conditions remain supportive, and the geopolitical premium, while still capable of producing headlines, is no longer in the driver's seat.

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Macro Thoughts

Growth: resilient, but watch the nowcast

Above-trend growth remains the anchor of our constructive view. The Weekly Economic Index continues to run at a 2.67% YTD average, consistent with real activity comfortably above trend.

The one development worth watching is the Atlanta Fed's GDPNow estimate, which has fallen from roughly 3.0% to 1.19% for 2Q 2026. While that is softer than the Weekly Economic Index and points to below-trend growth, GDPNow is historically volatile (especially around quarter-end), and we would not overreact to a single update. Our interpretation is one of modest deceleration rather than a meaningful deterioration in the outlook, with labor market and earnings revisions remaining constructive. Nevertheless, it is the macro indicator we are watching most closely, and our positioning already reflects that risk.

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Inflation: directionally improving

Inflation remains above target, but the direction is encouraging; PCE came in at 4.07% for May, with the Cleveland Fed's nowcast pointing lower through June and 3.71% for July, extending the disinflationary trail. The pace of inflation is moving in the right direction, and the distinction between "high" and "accelerating" continues to matter for risk assets.

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Financial conditions: the hawkish risk recedes

June's primary macro risk had a name: Chair Warsh, whose hawkish FOMC debut (the "price stability comes first" message we detailed in the June Global Markets Update, "Regime Change at the Fed") repriced the market away from rate cuts and hit the long-duration growth leaders hardest. This month, that hawkish risk eased: Fed Funds futures now imply 0.96 hikes through December 2027, down from 1.34 a month ago, roughly half a hike priced back out.

Financial conditions remain accommodative (Chicago NFCI at -0.50) and systemic stress low (St. Louis stress index at -0.64). Policy is still restrictive in level, but its transmission to actual financial conditions stays loose: the combination that has let the economy absorb higher rates without the tightening that typically precedes recession.

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Geopolitics: de-escalating, but headline risk

The Iran conflict that dominated the spring continues to de-escalate: the US–Iran memorandum signed June 17 targets a formal end within roughly 60 days, and traffic through the Strait of Hormuz has climbed to about 32 ships on a 7-day average (roughly half of the ~60/day normalization threshold), up from a near-standstill of 2.57 a month ago.

But the path is not linear. On July 7, 3 ships were struck in the strait, Iran's IRGC fired on commercial vessels, and the US launched fresh strikes; prediction markets actually trimmed year-end normalization odds to 62% from roughly 83%. De-escalation is under way and constructive for energy and inflation, but headline risk is live, so geopolitics remains a monitored risk rather than a driver of positioning.

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The Savvy Macro Dashboard

Summary

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Data

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Question(s) of the Month

"The generals are retreating: semis have lagged the S&P 500. Is the leadership breaking?"

This is a rotation. The semiconductors' underperformance reflects a valuation and positioning unwind in the most-crowded, most-extended names, not a downgrade of the earnings engine. Breadth is broadening (a reason we hold equal-weight exposure), and the index-level de-rating (forward P/E from 21.89x to 20.32x, back to its 10-year average) has improved the equity risk premium from a razor-thin 0.10pp to 0.43pp. Leadership handing off is how a bull market refreshes.

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"What does the semiconductor sell-off tell us about the regime?"

Very little has changed at the regime level. The pillars that matter are intact or improving: above-trend growth (WEI 2.67%), disinflation (PCE nowcast falling and at 3.71% for July), accommodative conditions (NFCI -0.50), low stress (-0.64), and positive earnings revisions (+0.12). A regime-threatening sell-off would show up in credit spreads, financial stress, and revisions turning negative, none of which is present. This is a de-risking of one crowded trade, not of the economy.

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"Are we late-cycle on the AI/semiconductor trade: is this the top?"

Our house view is that we remain in the middle of the AI investment cycle, not the end. We think it is helpful to view the AI opportunity as a 3-layer stack. The first layer is infrastructure: the "picks and shovels" that enable AI, including semiconductors, networking, cloud infrastructure, data centers, power generation, and cooling. This was the first phase of the AI bull market, as investors rewarded the companies building the compute backbone. The second layer is platforms and foundation models, where firms such as Microsoft, Google, Amazon, OpenAI, and Anthropic are building and distributing the intelligence layer. The third and ultimately largest layer is applications, where AI is embedded into enterprise software, financial services, healthcare, coding, legal, and customer workflows to drive measurable productivity gains and monetization. While leadership is likely to broaden beyond semiconductor companies over time, we believe all 3 layers remain in relatively early stages of adoption. Recent semiconductor weakness therefore looks more like a rotation within a secular bull market than the beginning of a structural decline, which is why lower prices have strengthened our conviction in our Technology overweight.

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Savvy Total Portfolios: Tactical Asset Allocation Positioning

Asset Class Views

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Sector Views

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Risks We’re Watching

1. Growth rolls over (elevated this month)

GDPNow fell from 3.0% to 1.19% (below trend) even as the WEI held at 2.67%. A further roll in growth, labor, or revisions would challenge the constructive call and raise the attractiveness of duration.

2. Financial conditions tighten meaningfully

Credit-spread widening, deteriorating liquidity, or a rise in the St. Louis stress index (now -0.64) would warrant a more defensive posture.

3. Neutral rates are structurally higher than expected

Persistent growth despite restrictive policy could reset long-run equilibrium rates higher, pressuring both equity multiples and bond prices.

4. Inflation reaccelerates

The PCE nowcast trail (3.71%, falling) is constructive, but renewed acceleration would force a more restrictive Fed and challenge the backdrop.

5. Geopolitical headline risk (monitored)

The July 7 strait flare-up shows the de-escalation path is not linear. Energy remains the transmission channel to inflation and financial conditions.

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Closing Thoughts

The story entering mid-summer is one of leadership changing hands, not of a cycle turning over. The generals (semiconductors and the mega-cap AI complex) have given back ground, and the index has felt it. But the engine underneath is intact: growth above trend, inflation cooling, a Fed less hawkish than feared, and stress low. We read the semiconductor sell-off as a rotation and a potential rebalancing opportunity within a larger bull market, not the beginning of a downtrend; we see the AI and semiconductor capital-investment cycle as mid-cycle, not late-cycle. Our positioning is unchanged: participate in growth through high-quality equities, keep the lowest-cushion cyclicals dialed back, and let fundamentals rather than headlines set the pace.

Put simply, we are constructive and still not complacent.