Market View: July-August 2026

By Argent Wealth Management, LLC on July 21, 2026

Executive Summary

Part 1: The Broad Picture

The economic backdrop remains constructive. Therefore, odds of a large correction remain low. Labor markets remain healthy, economic indicators point to moderate growth, high-yield spreads remain contained, and earnings revisions continue to be positive.
However, investor positioning warrants caution.
Tactical income-oriented strategies may become increasingly valuable. Covered call writing can generate additional income, provide partial downside protection, and potentially improve returns in flatter, more volatile market environments.

Part 2: Market Divergence, Semiconductors, and Artificial Intelligence

Market divergence. Many stocks are registering new highs while many are also registering new lows, a divergence that has historically signaled short-term market weakness. Despite this mixed backdrop, strong performance from semiconductor stocks has provided meaningful support, helping propel broader indexes higher
The AI infrastructure buildout remains the key driver of semiconductor demand. Massive investments by hyperscalers such as Microsoft, Alphabet, and Amazon in data centers, advanced processors, and cloud infrastructure have fueled exceptional growth across semiconductors and related industries.
Current semiconductor valuations appear less attractive than earlier in the cycle. While earnings growth remains robust, much of the AI-driven optimism appears reflected in prices. Historical valuation ranges suggest downside risk could exceed upside potential if investors begin anticipating a slowdown in the infrastructure spending cycle.

Part 1: The Broad Picture

The economy remains healthy. There remains one job opening per unemployed.

The NDR Economic Timing Model consists of 27 different economic indicators. Each indicator in the model monitors a different sector of the economy and rates that sector’s monthly performance with a positive or a negative signal. Currently the model sits at the high end of moderate growth.

Moreover, high yield spreads are well below average. Spreads would widen if bond investors thought economic issues were imminent.

Earnings revisions remain positive, which is historically bullish for stocks.

Longer-term, the average investor equity allocation stands at 52.9%. Historically, at this level, rolling forward 10-year returns have been low.

We have been in a bull market since March of 2009. At some point this long-term bull market which has produced 14.2% annualized returns will end. Investors should expect lower returns over the next 10 years.

In the near term, the low probability of a recession suggests that a market correction exceeding 15% is unlikely, and even if a correction ensues it would be a buying opportunity in the context of a broader bull market. For long-term investors, however, it may be prudent to begin preparing for a potentially lower-return environment in the years ahead.

What to Do in a Lower Return Environment

In a lower-return market environment, generating attractive risk-adjusted returns may require greater selectivity, creativity, and tactical portfolio management. One strategy that may be particularly well suited for such conditions is covered call writing.

A covered call strategy involves owning an underlying stock while selling a call option against that position. In exchange for granting another investor the right to purchase the stock at a predetermined strike price before a specified expiration date, the option writer receives an upfront premium.

If the stock remains below the strike price through expiration, the option expires worthless and the investor retains both the stock and the premium received. If the stock rises above the strike price, the option’s value will increase, limiting some upside participation. However, the investor still benefits from the appreciation of the underlying stock up to the strike price, in addition to the premium collected. In many cases, positions can be actively managed by repurchasing the option and rolling it into a later-dated contract if circumstances warrant.

Covered call strategies can offer several potential benefits. The premium income provides an additional source of return that can enhance portfolio cash flow in markets where capital appreciation is more limited. The premium also offers a modest cushion against declines in the underlying security, helping to partially offset losses during periods of market weakness. Furthermore, option premiums generally increase during periods of elevated market volatility, making covered call strategies potentially more attractive when uncertainty rises.

At Argent, we have structured portfolios to remain diversified across equities, fixed income, and commodities while also seeking opportunities to enhance returns through tactical strategies where appropriate. Depending on market conditions and portfolio positioning, option-income strategies may help generate a more consistent distribution stream. In an environment characterized by modest expected returns and episodic volatility, combining diversified asset allocation with disciplined income-generation strategies may improve overall portfolio outcomes while helping investors remain committed to their long-term investment plans.

Part 2: Divergent Market, Semiconductors, and Artificial Intelligence

It has been a highly divergent market. NDR’s High-Low Logic Index highlights the unusually large number of stocks making both new highs and new lows, reflecting uneven market participation. At the same time, semiconductor stocks have been a primary force behind benchmark returns.

A divergent market has historically been a negative indicator for stock market performance. Investors should invest with caution until the market is less divergent.

Some of the best-performing semiconductor companies were constituents of the Russell 1000 Value Index during the first half of the year. According to FactSet, this group returned approximately 175%, compared with roughly 39% for the S&P 500 and 20% for the Russell 1000 Growth Index. The exceptional performance of these “value” semiconductor stocks explains a significant portion of the year-to-date return differential between the value and growth benchmarks.

With semiconductors driving a positive but divergent market, it is important to assess whether they are worth investing in today.

Semiconductors, AI Investment, and Cycles

As of 7/13/2026, SOXQ, the Invesco PHLX Semiconductor ETF is up YTD (year-to-date) about 74% and about 230% in the last three years.

According to FactSet, its NTM (over the next twelve months) price-to-earnings (P/E) is about 26. Earnings are expected to be $4.07 over the next twelve months according to FactSet.

However, over the past five years, SOXQ has traded at a wide range of valuations, with its forward P/E ratio falling to approximately 12.5x at the low end and reaching nearly 30x at the high end, most recently in June. Because equity markets are forward-looking, semiconductor valuations are likely to compress well before earnings peak if investors begin to anticipate a slowing purchase cycle.

Assuming no change in earnings, a re-rating from 30x to 20x forward earnings would imply a price of roughly $81 per share, compared with the July 12 closing price of $101.53; a decline of approximately 20%. In a more bearish scenario, if SOXQ were to revisit its five-year valuation trough of 12.5x forward earnings, the implied price would be closer to $50, representing a drawdown of more than 50%.

On the other hand, the bullish case assumes earnings increase another 50% over the next several years to approximately $6.10 per share and that the market continues to award the sector a premium multiple of roughly 25x earnings. Under those assumptions, SOXQ could reach approximately $152 per share, or about 50% above current levels.

While the upside and downside scenarios appear roughly balanced, the risk profile is less attractive when viewed against the semiconductor sector’s strong year-to-date performance. Given the likelihood that investors will begin discounting the eventual end of the current semiconductor spending cycle before it becomes evident in reported earnings, the risk-reward tradeoff appears skewed to the downside.

As a result, despite maintaining exposure to the semiconductor industry, we believe the more prudent course is to trim positions.

What is Driving Returns?

Much of the semiconductor sector’s extraordinary growth over the past several years has been driven by the rapid buildout of AI infrastructure. Hyperscalers such as Microsoft, Alphabet, and Amazon have committed hundreds of billions of dollars to expanding data center capacity, purchasing advanced processors, and building the computing infrastructure required to support both their own AI initiatives and those of leading model developers such as OpenAI and Anthropic. These investments have become one of the most important sources of demand for semiconductors.

Importantly, Microsoft, Alphabet, and Amazon are not only infrastructure providers but also strategic participants in the AI ecosystem through their investments and partnerships with leading AI firms. Collectively, these companies represent approximately 14% of the S&P 500, providing investors with significant exposure to AI adoption through businesses that may ultimately capture value from AI deployment rather than solely from selling the hardware that enables it.

The benefits of AI-driven capital spending extend well beyond semiconductor manufacturers. Semiconductor equipment companies such as Applied Materials and Lam Research, storage providers including Western Digital and SanDisk, and hardware suppliers such as Dell Technologies and Hewlett Packard Enterprise have all benefited from increasing demand for data center infrastructure. As organizations continue to invest in computing capacity, networking, storage, and supporting equipment, the economic impact of AI is spreading across a broad range of industries.

AI Adoption and Opportunities

At this stage, the question is no longer whether AI will be adopted. Adoption is already occurring across businesses of all sizes. The more important question is how quickly organizations can integrate AI into core workflows, software development, customer service, analytics, and decision-making processes. According to IDC, global AI spending is expected to grow at roughly a 29% compound annual rate through 2028, reflecting the continued expansion of enterprise AI deployments and related infrastructure investments.

We view the AI investment cycle as occurring in phases. The first phase, which largely characterized the 2023–2025 period, was centered on experimentation, proof-of-concept projects, and initial deployments. The current phase is broader enterprise adoption, as organizations move from testing AI capabilities to embedding them within production environments and critical business processes. This stage is likely to support continued demand for semiconductors, servers, networking equipment, and other infrastructure over the next several years.

A third phase may emerge once AI becomes more fully integrated into enterprise operations. At that point, spending is likely to shift from large-scale infrastructure buildouts toward optimization, efficiency improvements, and incremental upgrades. If hyperscalers are currently investing ahead of future demand, infrastructure spending growth could eventually moderate. When investors begin to anticipate that transition, semiconductor valuations may come under pressure even if earnings remain strong. As is often the case, equity markets are likely to discount that change well before it becomes visible in reported financial results.

While semiconductors have been among the largest beneficiaries of the AI investment cycle, they may not be the only long-term winners. The hyperscalers themselves stand to benefit significantly if today’s investments generate sustained demand for cloud computing, AI services, and model hosting. As enterprises deploy AI at scale, utilization of their data centers should increase, creating opportunities to earn attractive returns on the infrastructure investments being made today.

Among the hyperscalers, Alphabet appears particularly well positioned given its combination of proprietary AI models, a leading cloud platform, and its vast distribution through Search, Workspace, Android, and other products. However, Microsoft and Amazon possess similarly compelling advantages through Azure and AWS, respectively. More broadly, all three companies participate in multiple layers of the AI value chain and currently trade at valuations that appear reasonable. For investors seeking long-term exposure to AI adoption, the risk-adjusted opportunity may increasingly reside with the companies monetizing AI demand rather than solely with those supplying the hardware powering the buildout.

As the AI industry matures, the benefits are likely to broaden beyond the companies building the underlying infrastructure. While semiconductors, data centers, and related hardware have been the primary beneficiaries of the initial investment cycle, increasing value may accrue to companies that successfully use AI to improve productivity, lower costs, and enhance customer outcomes. Mission-critical software providers, financial institutions, and healthcare companies appear particularly well positioned given their large information-processing workloads and opportunities for workflow automation. Over time, these sectors could capture a larger share of AI-driven economic value, potentially narrowing the performance gap with infrastructure-related technology companies that have led the market during the early stages of the AI buildout.

Market View: July-August 2026

By Argent Wealth Management, LLC on July 21, 2026

Executive Summary

Part 1: The Broad Picture

Part 2: Divergent Market, Semiconductors, and Artificial Intelligence

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