Run Through the Jungle: Markets misread the signals
July 24, 2026
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2 min
July 2026 highlights
Up Around the Bend: The hawks are back in town, and while the inflation backdrop has undoubtedly taken a turn in the wrong direction thus far in 2026, under the surface there’s evidence to suggest that the data hasn’t deteriorated to the degree the narrative surrounding it has. The window is open for improving inflation prints over the coming months to help the doves wrest back control from the hawks.
Bad Moon Rising: Energy prices may be front and center, but all of the hawks’ attention is squarely on the firming in supercore services prices. These prices tend to be a function of labor market conditions, and as such the divergence between rising supercore services prices and softening wages is notable. With labor market conditions remaining soft and leverage firmly in employers’ hands, it’s hard to see how wage growth accelerates materially from here, suggesting the divergence may prove to be short lived, with supercore services settling back down in the months to come.
Lookin’ Out My Back Door: While official inflation measures have been moving the wrong direction this year, alternative real-time measures have continued to point to ongoing disinflation. While many of these measures have been maligned for their consistently softer year-over-year rates, the true utility has always been in the direction of travel as Truflation in particular has been remarkably accurate at sniffing out inflection points ahead of the official statistics. Should we see that disinflation filter into the official statistics in the coming months we have very likely passed peak hawkishness.
Down on the Corner: For all of the optimism around consumption entering 2026, it’s been a disappointing first half of the year for consumers. The energy shock obviously played a large role in compressing real wages and spending, but those expecting a material rebound as energy prices have cooled are likely to be disappointed once again. Consumption perked up in the second quarter, but headwinds are once again mounting which will likely keep consumption on a moderating path.
Who’ll Stop the Rain: While technicals continue to be the driving force behind the unwind of the crowded momentum trade, the price action is being backfilled by renewed concerns around the durability of the AI trade. Semiconductors have been at the leading edge of the momentum trade, and while they have seen massive upside earnings revisions, they have historically been a highly cyclical industry. The question is whether that remains the case. We may be at peak earnings, in growth rate terms, but if that’s followed by a moderation to still lofty levels of earnings growth we may see renewed strength once positioning is cleaned up.
