Five for Friday – July 31, 2026

Breadth, Valuation, Long-Term Returns, Momentum, WWI

1. Rotation

One of the most important things in the market today is the end of the “a few companies dragging the market higher” narrative. Nearly 75% of S&P 500 stocks are above their 200-day moving average (a gauge of a stock's long-term trend); only 56% hit that mark in early June when the index last made a new all-time high. Smaller, more economically sensitive stocks are in even better shape. That this is occurring while semiconductors – the 1H26 belle of the ball – are in a sell off further highlights the market’s resilience.  

 2. Valuation

You’ll often hear some version of “the stock market is expensive relative to history.” And while some corners of the market do look frothy, I want to push back on that phrase. For much of the 20th century, indexes were dominated by railroads, energy, and other capital-intensive businesses that required massive ongoing investment in infrastructure and had volatile profits. Investors appropriately paid lower earnings multiples for these stocks. Network-based and intellectual property-centric businesses have higher and more consistent cash flow, better returns on investment, and stickier growth – so the market arguably deserves a higher multiple now. The backdrop has also changed. As this study details, investors today keep a larger share of company profits due to more favorable tax laws (and conceptually, a stock’s worth is just the discounted value of all future cash investors can keep). Conditions could change – AI infrastructure is expensive and taxes may rise as deficits swell – but we should consider historical context when comparing today’s valuations to history.  

3. Expecting

As someone who loves market history, the Deutsche Bank Guide to Long-term Investing is wonderful reading. In particular, the historical returns (pg. 40 onward) are useful in framing what we should expect to earn from our stocks over time. Two takeaways: 1) recent returns are better than average and unlikely to continue in perpetuity; and 2) investors have historically been rewarded for taking on risk. Across more than 200 years, the authors write, “equities have only a 0.8% probability of under-performing ‘cash under the mattress’ over a 25-year period.” Patience remains the ultimate edge.

4. Momentum

Last week, we cautioned that August and September tend to be a volatile period for stocks and advised that expectations be kept in check. However, the strength of the market across the first seven months of 2026 colors things more positively. Over the last century, U.S. large cap stocks have been positive through the first seven months of the year 76 times, and the last 5 months of all 76 of those years had a median return of 7.2%. But when the market is negative across those first seven months, the median return over the last five is just 1.6%. Momentum endures.

5. On this day

in 1914…the greatest crash that never happened. This was the day that the U.S. Treasury Secretary closed the New York Stock Exchange to prevent the mass sale of U.S. securities by (primarily foreign) investors on the eve of World War I. The 4-month closure would be the longest in the exchange’s history, but – perhaps ironically given the panic at the time – helped set the stage for America’s ascendance to global financial dominance over the next century.  

Disclosures

This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. Market and economic statistics, unless otherwise cited, are from data provider FactSet.

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Copyright 2026 Robert W. Baird & Co. Incorporated.

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