Market Strategy
by Talley Leger, Chief Market Strategist
July 31, 2026
Sales: Companies’ Ultimate “Proof of Concept”
As my regular readers know, I’ve argued that strong sales tell companies the world wants their products and services. In turn, capital expenditures (capex) are companies’ way of telling the world that they’ll provide more of their products and services, faster.
When businesses see sustained demand, as is currently the case, they rationally shift from defensive to offensive postures because revenues are a “green light” for Chief Executive Officer (CEO) confidence. Management is much more likely to approve a multi-year expansion plan if the current quarter’s sales break records. Indeed, results transform capex from a “nice to have” to a “need to have” and this time is no exception (see the chart below).
Feedback Loop: CapEx Literally Manufactures Future Sales Growth
Sources: FRED, WCG, 07/29/26. Notes: Shaded areas denote NBER US recessions. NBER = National Bureau of Economic Research.
Virtuous Cycle
Could the relationship between sales and capex also work in the other direction? Is it a circular, self-reinforcing dynamic? Yes, it’s a two-way street that transforms our discussion from a simple correlation analysis to a structural “big picture” thesis. In economics and corporate finance, it’s known as a “multiplier effect:”
- Present Sales Drive CapEx (Trigger): Surging top-line growth – 11.9% year-over-year (Y/Y) in May – fill corporate coffers with cash. The good news is that all 11 sectors of the S&P 500 are enjoying revenue growth, led by information technology (35% Y/Y), energy (28% Y/Y), communication services (15% Y/Y) and financials (13% Y/Y). In turn, strong sales growth gives management teams the conviction to authorize strong capex growth – 12.5% Y/Y in June.
- CapEx Drives Productivity (Multiplier): When companies deploy that capital – especially into tech infrastructure, artificial intelligence (AI) and digital platforms – they aren't just buying equipment. Rather, they’re buying efficiency. As I’ve written, digital infrastructure allows companies to do more with less, lowers marginal costs and increases operating leverage.*
- Productivity Drives Future Sales (Feedback Loop): This is where the cycle completes itself, and the “Big Banks” (e.g., JPMorgan, Goldman Sachs, Citigroup, Bank of America, Wells Fargo) are just one recent example. Because our major financial institutions invested heavily in digital infrastructure, they can now process higher transaction volumes and offer better, faster services to their clients. Superior capabilities attract more deposits, drive higher engagement and ultimately result in the next wave of top-line growth.**
Productivity Promise
Is my “tech enablement” thesis working? Yes. If the revenue-to-capex relationship were just a one-way street, and sales simply generated one-off purchases of equipment, then the momentum would eventually stall once the equipment was bought. A machine can only stay in motion via an external energy source.
Fortunately, capex literally manufactures future sales growth. Specifically, it creates operating leverage, widens margins and generates the income to invest in the next wave of innovation. To wit, seven of the 11 sectors of the S&P 500 have benefited from margin expansion over the past year (see the chart below). New and old economy segments alike have kept their “productivity promise” by harnessing a fundamental machine powered by an external source of energy: Demand.
Margin Expansion: From Tech “Concentration” (M7) to Tech “Diffusion” (S&P 493)
Sources: FactSet, WCG, 07/29/26.
Broader Market = Healthier Market
- Stage 1 of the “tech enablement” cycle has been dominated by the “Magnificent Seven” (M7) and “hyperscaler” companies building and investing in the pipes, processing power and platforms that support the modern equivalent to the “Gold Rush” of the 1800s. In this “concentration” phase, massive capex and tech spending has created the digital and physical infrastructure of the AI revolution.
- Stage 2 of the “tech enablement” cycle isn’t a rejection of “Big Tech.” On the contrary, it’s about the remaining 493 companies leveraging those new platforms to capture and reap the rewards of superior operating efficiency. In this “diffusion” phase, tech is adopted by non-tech companies, thereby enabling users’ evolution to a higher plane of existence (see the table below).
Tech: An “Enabler” for the Rest of the Market
Bottom Line: It isn’t just about a handful of great companies anymore. For the stock market rally to continue, it can’t rely on a single cylinder of our growth engine or seven mega-cap tech giants. Tech-enabled companies across the communication, energy, material, financial, utility and industrial sectors must carry their share of the load. According to FactSet, the S&P 493 companies are expected to narrow the gap with earnings growth of 23% Y/Y in 2Q26 (see the table below), which would be the fastest pace since their earnings grew 32% Y/Y in 4Q21.
Earnings Growth: Mind the Gap – Tech Itself Should Enable a Broader Stock Market
Sources: FactSet, WCG, 07/29/26. Notes: EPS = Earnings per share. E = Estimate.
If you like what you see and want more striking visuals, please check out our 2026 Mid-Year Macro Outlook entitled, “Dynamic Optimism in a Non-Inflationary Equilibrium,” or reach out to your WCG financial advisor for a copy.
*⚙️ Doing More With Less: Why S&P 500 Employees Are 3x More Productive Than the Average US Worker, July 17, 2026
**🏦🤖 Bank Earnings Ratify the “Tech Enablement” Thesis, February 6, 2026
Portfolio Strategy
by Jim Worden, CFA®, CMT®, CAIA®, Chief Investment Officer
July 31, 2026
The Trifecta: Fundamental, Technical, and Macroeconomic Analysis
Congratulations to all those CFA candidates who recently passed one of the CFA levels. These are brutal exams, covering a broad swath of economics, quantitative analysis, derivatives, fixed income analysis, equity analysis, accounting, portfolio management, risk management, capital markets, behavioral finance, and ethics. The recent passing rates were 39%, 43%, and 50% for Level I, Level II, and Level III, respectively.1
Many years ago, when my wife and I had young children, I remember how difficult these exams were. Like many, I was not one of those who passed each level on the first attempt. But, like many other aspects of life, failing can be a great teacher. It can teach discipline, hard work, and tenacity, but also humility about one's strengths and weaknesses. Exams are great for getting feedback.
Currently, I am using a few dozen AI models for research. The models are excellent for grading various analyses and giving feedback. I am also having some models grade each other. This has been helpful, as we know no AI model is perfect. Even the very smartest models make mistakes. Sometimes, models even hallucinate and make up figures. This is somewhat controllable at the prompt level, and I am learning to be much more explicit about what the model should or should not do.
But when it comes to economic or market forecasting, as you might imagine, the analyses, as thoughtful and convincing as they may be, are all over the place. You can literally choose your own data to dress up an argument. This is partly because theory is not always leaning on a stable three- or four-legged stool that you can always stand on. It is sometimes only one or two legs. For example, if unemployment is creeping higher and inflation is rising at the same time, there is no black-and-white playbook as to what the Fed should do and when. There are rules, such as the Taylor Rule and the Sahm Rule, but these are heuristics that may conflict with each other.
When we look at the headwinds and tailwinds for the economy, it is not always crystal clear or mathematically provable what will happen next, either in direction or amplitude. We can certainly lean on trend and higher-frequency data that might support our view, but the confidence interval may be wide, even when the voice proclaiming the forecast is overwhelmingly confident. And sometimes, like AI models, forecasters are confidently wrong.
The "K-shaped" economy is a good example of divergences within an economic system. Should policymakers focus solely on the aggregate of the two legs, even though it may skew in one direction? Should they focus on the individual components and, if so, by how much? I have my own thoughts about what the Fed should do, but it is not like solving an accounting problem or determining an option's price. The direction and amplitude at the most precise level are simply impossible to get right without perfect hindsight. And if everything lined up perfectly and the forecaster was spot on, they most likely had plenty of luck on their side.
Fundamental data is also very much subject to interpretation. There are many different models that seek to place a fair value on a company. Some of the largest and most well-resourced Wall Street firms often cannot agree on the best investments. Some managers focus on growth, while others focus exclusively on value investing. Some firms look only at quality or dividend payers. There are so many ways of looking at it.
Even technicians often disagree about buy points, trends, or what an oscillator is or is not saying.
While going through the CFA Program, I learned about "mosaic theory." The idea is this: when someone gathers both public and nonmaterial information on their own, they can use the combination of this information ethically and legally. The individual puzzle pieces may look useless on their own, but when combined, they form a clear mosaic.
A similar principle, I think, applies to how we look through different lenses. As an investment committee, we take an in-depth look at technicals, fundamentals, and the macroeconomic view. Yes, there are more pieces of the puzzle to work through and the puzzle deliberately incorporates many styles of investing. We believe the process brings value to investors, with the goal of reducing unnecessary or unwanted risks and capitalizing on opportunities that present themselves. Quantitative analysis and our multi-factor models also help us cull through some of the noise in areas where no one can agree. Overlapping signals across each discipline can also give us timely conviction. The goal of all this work is to separate the signal from the noise. The Venn diagram below illustrates how we try to incorporate multiple disciplines:
While our research is extensive, we also incorporate research from some of the largest asset management firms in the world. They systematically review our strategies with a fine-tooth comb, providing invaluable feedback along the way. There are always things to fine-tune, improve, or iterate on. The goal is not repetition for its own sake, but continuous improvement.2
One recent discussion we have had was about emerging markets, particularly the MSCI Emerging Markets Index and strategies that are mapped to it. The index's total return was 60% from 5/30/25 to 6/22/26, according to Bloomberg. On the surface, investors may think that owning this diversified emerging markets index is the place to increase their allocation. With nearly 1,200 holdings representing 24 countries, surely this would make a very diversified investment, right? But did you know that, according to MSCI and as of 6/30/26, a whopping 32% of the entire index is made up of just three tech companies? The same index's total return is down more than 13% from 6/22/26 through 7/30/26, according to Bloomberg.
We continue to encourage investors to be educated about what they own and why they own it. Part of the genius of compounding returns, often described as the eighth wonder of the world, is being able to reasonably compound in both good environments and bad ones. That might mean giving up some returns when markets are very hot. It could also mean shallower drawdowns when the market is struggling. We believe the rigor and depth of a disciplined approach that incorporates technical, fundamental, and macroeconomic analysis, along with risk management, diversification, and other quantitative tools, is worthwhile. That diversification may span styles, regions, factors, or sectors. We continue to be content to give up some upside in strong bull markets if we can also seek to protect more on the downside.
In volatile periods such as the one we are experiencing, we believe that some of the "boring" companies may also make interesting investments because they behave differently from some of the flashy names often discussed in the media.
Source notes:
- CFA Institute. The 39% and 43% pass rates reflect the May 2026 Level I and Level II exam administrations; the 50% pass rate reflects the February 2026 Level III exam administration.
- The Investment Strategy Committee meets quarterly with these firms. They provide independent feedback only; their participation does not constitute an endorsement, approval, recommendation, sponsorship, or guarantee of WCG or any WCG strategy.
Definitions
CFA Program: The professional credentialing program administered by CFA Institute and organized into three examination levels.
Federal Reserve (Fed): The central bank of the United States.
Taylor Rule: A monetary policy guideline that relates a central bank's policy rate to inflation and economic activity.
Sahm Rule: A recession indicator based on a sustained rise in the three-month average unemployment rate relative to its low during the previous 12 months.
K-shaped economy: An economy in which different groups, sectors, or industries experience sharply divergent outcomes.
Mosaic theory: An investment-research concept under which an analyst may combine public information and nonmaterial information to reach an investment conclusion, provided material nonpublic information is not used.
Fundamental analysis: The evaluation of a company's financial condition, operations, valuation, and business prospects.
Technical analysis: The evaluation of price, volume, momentum, and other market-based data.
Oscillator: A technical indicator that moves within a range and may be used to assess momentum or potentially overbought or oversold conditions.
Macroeconomic analysis: The evaluation of broad economic conditions, including growth, inflation, employment, fiscal policy, and monetary policy.
Quantitative and multi-factor analysis: Rules-based analysis that evaluates securities using measurable characteristics or factors.
MSCI Emerging Markets Index: A free-float-adjusted market-capitalization index designed to represent large- and mid-cap equities across emerging markets.
Total return: Investment performance that includes price changes and reinvested distributions, according to the methodology of the applicable data source.
Drawdown: The decline from an investment's peak value to a subsequent trough.
The National Bureau of Economic Research (NBER) defines a recession as a significant decline in economic activity that is spread across the economy and lasts more than a few months. Recessions are the periods between peaks and troughs of the business cycle.
10-year US Treasury note: A government debt security issued by the US Department of the Treasury that pays the holder a fixed interest rate every six months and matures in 10 years, at which time the principal amount is returned to the investor.
GDP: The value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production. GDP is also equal to the sum of personal consumption expenditures, gross private domestic investment, net exports of goods and services, and government consumption expenditures and gross investment.
Fed: The central banking system of the United States. It regulates commercial banks, manages the nation’s money supply, and sets monetary policy to promote maximum employment and stable prices.
Interest rate risk: The danger that a change in market interest rates will reduce the value of a fixed-income investment like a bond. When interest rates rise, bond prices fall, causing losses for investors who sell before maturity.
Term premium: The extra compensation or higher yield that investors demand for holding a long-term bond instead of a series of short-term bonds. That added return protects investors against the increased uncertainty and price volatility of locking their money up over time.
Disclosures
This material is provided for informational and educational purposes only and should not be construed as personalized investment advice, an offer to sell, or a solicitation to buy any security, strategy, or investment product. References to securities, companies, indexes, asset classes, or strategies are illustrative and do not constitute recommendations.
Investing involves risk, including the possible loss of principal. There is no assurance that any investment objective will be achieved. Statements regarding reducing risk, shallower drawdowns, protecting on the downside, or giving up upside in strong markets describe objectives or preferences and are not guarantees of future results.
Past performance is not indicative of future results. Index returns are unmanaged, do not reflect advisory fees, transaction costs, or other expenses, and cannot be invested in directly. Total return figures may include reinvested dividends or distributions, depending on the source methodology.
Diversification, asset allocation, technical analysis, fundamental analysis, macroeconomic analysis, and quantitative tools do not ensure a profit or protect against loss.
Economic and market forecasts are inherently uncertain, are based on assumptions that may not occur, and may change without notice. Opinions are as of July 30, 2026, and are subject to change.
Data attributed to Bloomberg, MSCI, CFA Institute, or other third parties are believed to be reliable but have not necessarily been independently verified. Accuracy and completeness are not guaranteed.
The views expressed are for informational and educational purposes only and are subject to change without notice.
This material is not intended as, and should not be interpreted as, individualized investment advice or a recommendation to buy, sell, or hold any security, sector, industry, or investment strategy.
References to specific companies, securities, sectors, or industries are for illustrative purposes only and should not be construed as investment recommendations.
Investing involves risk, including the possible loss of principal. Investments in a specific industry or sector may involve greater risk and volatility than more diversified investments.
Past performance is not indicative of future results. No investment strategy can guarantee a profit or protect against loss.
Forward-looking statements, including views about future demand, pricing, supply, or industry cycles, are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results may differ materially.
Data and information are believed to be reliable, but accuracy, completeness, and timeliness are not guaranteed. Source documents should be retained for factual claims, third-party research references, and company-specific data.
Portfolio holdings, allocations, and risk budgets are subject to change based on market conditions, client objectives, and investment guidelines.
The author, firm, clients, or related persons may hold positions in securities mentioned and may buy or sell those securities without notice, subject to applicable policies and regulations.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment Advice offered through WCG Wealth Advisors, LLC, an SEC Registered Investment Advisor. WCG Wealth Advisors, LLC and The Wealth Consulting Group are separate entities from LPL Financial. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. Past performance does not guarantee future results.
All information in this report is believed to be from reliable sources; however, WCG Wealth Advisors, LLC, makes no representation as to its completeness or accuracy.
In general, stock values fluctuate, sometimes widely, in response to activities specific to the companies as well as broad market, economic and political conditions. Stock investing involves risks, including fluctuating prices and loss of principal. Value investments can perform differently from the market as a whole. They can remain undervalued by the market for long periods of time. (135-LPL) International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets. (93-LPL)
The fast price swings in commodities will result in significant volatility in an investor’s holdings. Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors. (122-LPL)
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. (28-LPL)
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. (26-LPL)
Standard deviation is a historical measure of the variability of returns relative to the average annual return. If a portfolio has a high standard deviation, its returns have been volatile. A low standard deviation indicates returns have been less volatile. (131-LPL)
This is for educational / general purposes only, does not constitute investment, tax or legal advice and should not be relied on as such. This is not to be construed as an offer to buy or sell any financial instruments. Any strategies discussed are not intended to be relied upon as the sole factor in making an investment decision for any individual. As with all investments there are associated inherent risks. Please obtain and review all financial material carefully before investing. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. These comments should not be construed as recommendations but as an illustration of broader themes.
Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations. In addition, forward-looking statements, including index targets or market scenarios, are hypothetical in nature, reflect current views and assumptions and are subject to change based on market and economic conditions and are not guarantees of future performance. This is a hypothetical example and is not representative of any specific investment. Your results may vary. (88-LPL) Scenario outcomes are illustrative and not predictive. This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
The S&P 500 is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. Indexes are unmanaged and cannot be invested in directly. (102-LPL)
Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
Asset allocation does not ensure a profit or protect against a loss. (34-LPL)
Publication Date: July 31, 2026
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