Every Market Has Its Drawbacks

Scott Poore, AIF^®, AWMA^®, APMA^®

July 24, 2026

Markets pushed back this week against strong corporate earnings and further conflict in the Middle East. Investors have been lulled into complacency by superior tech stock performance over the past couple of years. The mettle of investors may be challenged to stay the course. This week's musings are inspired by the 1988 song "Every Rose Has Its Thorn" by Poison. Here is some trivia about the song:

This song was the only #1 hit for Poison, spending three weeks atop the Billboard 100 charts. It sold more than 700,000 copies and was named number 34 on VH1's "100 Greatest Songs of the 80s".
Bret Michaels, lead singer of Poison, wrote this song after learning that his girlfriend had moved on from their relationship. He called his girlfriend from a laundromat in Dallas, TX and heard a man's voice in the background. Michaels says he still has the yellow legal pad where he wrote hundreds of verses that he eventually whittled down into the verses and chorus of this song.
Michaels explained in a "Behind the Music" special that the metaphoric meaning behind the rose and thorn in this song is the fact that his music career (rose) was taking off at the same time his relationship (thorn) was falling apart.
Poison's record label didn't want to release the song because they felt it was too pop-leaning and didn't fit the band's rock image. The band played the song on the road a few times and it connected with fans, leading to its eventual release.
The first radio station to play the song was a Dallas country music station. It was a while before rock stations realized it was a crossover song from the band.

Here's what we've seen so far this week...

The Thorns. The equity market has become segregated primarily between "growth" and "value" stocks of late. As the song says in the first few verses, "We feel miles apart inside," so do markets at the moment. Since the equity market peaked on June 1st, value stocks have out-performed growth stocks by a measure of almost 10-to-1.¹ The lack of performance isn't so much that growth stocks are failing to generate profits, but rather the market is punishing growth stocks for any measure of profitability that it thinks is suspect. The good news is that the recent drawdown in tech/momentum stocks is on par with past pullbacks. In fact, over the last 20 years, 5 of the 7 prior tech/momentum drawdowns did not result in a recession, but rather, were the result of the market rotating to under-valued sectors. That being said, there are some concerns over the spending on AI and how companies will be able to support the debt taken on to build out AI. Some early warning signs point to postponed or cancelled AI data center projects in 2025 and 2026.² Then this week, one of the major players involved in the AI build out, Google, posted it's first ever negative cash flow quarter since the company went public. This is causing further distress over whether or not companies with considerable AI build-out debt can pay off such debt in the future. As a result, Mag 7 stocks have taken a beating since the beginning of June. The good news is, as we'll explore in the next section, the market is rotating to other under-valued areas of the equity market similarly to previous tech/momentum drawdowns. Finally, among the thorns in the market, is the situation in the Middle East. Tensions reached a new peak this week with fresh military action amid calls by nations other than Iran and Israel in the Middle East to renew peace talks. Instead, military action has continued while Sec. of State Marco Rubio stated on Thursday that Iran is "not ready to make a deal."³ This caused markets to sell off on Thursday and oil/gas prices to rise. Oil is higher by approximately 30% since hostilities renewed at the beginning of this month.⁴ This is calling into doubt recent strides in falling inflation. However, it should be noted that the Cleveland Federal Reserve, while revising their July CPI expectation to flat, is still showing a year-over-year decline in CPI from 3.5% in June to 3.4% expected for July.⁵ So much for the thorns plaguing the market - let's move on to the roses.

The Roses. While the verses in the song read, "Every Rose Has Its Thorn," they also read, "Every night has its dawn" and markets are no different. Though markets are working through a test of growth/momentum stock valuations, the other stocks in the market are faring much better. Since equity markets peaked on June 1st, the top 50 stocks in the S&P 500 Index are down more than 6%. Mag 7 names are down at least 9% over the same time period. However, the equal-weighted S&P 500 is up more than 2%, meaning that the other stocks are seeing better performance than the top 50, over-concentrated names in the index. This should not come as a shock as 2nd quarter earnings are seeing strong results outside of technology stocks. With about 14% of S&P 500 stocks having already reported Q2 earnings, 93% are exceeding earnings estimates.⁶ More importantly, some of the "forgotten" sectors, such as Industrials, Basic Materials, Real Estate, and Energy are beating earnings estimates at a 100% clip, so far.⁶ This would be indicative of a healthy market seeing rotation to lower-valued stocks. Mag 7 stocks have been on an incredible run the last 2 1/2 years which should have given investors some pause. However, while one group of companies have seen their boon, others appear ready to participate. Analysts' expectations for the remainder of the year are for Mag 7 companies' earnings to slow, while the other 493 companies' earnings in the S&P 500 Index to growth faster. This could help the stock prices of the other 493 stocks to participate in this current bull market cycle, while Mag 7 could take a breather or slow in growth. Again, this would not be a bad thing, but a healthy thing for markets to see the majority of other sectors outside of technology shine for a while. The economic backdrop does not lend itself to seeing the pullback in growth stocks lead to something worse - as it did during COVID and the 2008 Financial Crisis. The labor market remains stable as Initial Jobless Claims made a new low not seen in more than two decades.⁷ The New York Fed has revised their estimate of 2nd quarter GDP to be north of 2%.⁸ And, there is very little stress underlying the market. The St. Louis Fed's Financial Stress Index is well below zero at -0.7 and no where near the positive levels associated with recessions.⁹ In addition, the Chicago Fed's National Financial Conditions Index is also well below zero at -0.55, similarly not near recession levels.¹⁰ Yet, if we dig even deeper into the Financial Conditions Subindices - Credit and Risk - those subdivisions of the broader index sometimes show signs of stress before the broad index. Currently, both the Credit and Risk subindices are below zero and not at levels just preceding a recession. It's typically a good thing for investors to examine their portfolios and take risk off the table when markets get frothy, but that doesn't mean the bull market cycle is necessarily ending.

Click here to watch the iconic music video that ranked #20 on MTV's list in 1988.....

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Disclosures

The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.

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