July 19, 2025 Market Update

Stocks moved mostly higher this week, helped by a handful of high-profile companies that delivered upbeat profit reports, reassuring investors that the market’s recovery from recent tariff-driven volatility has legs.  Market leadership remained narrow, but sector breadth improved modestly.

Bond markets were relatively quiet, with Treasurys holding steady despite several Fed officials reiterating a cautious approach to rate cuts.  Inflation data released during the week aligned with expectations, offering little reason for the central bank to accelerate its timeline.

This week’s calm suggests the song remains the same—for now, the Fed is staying patient, the economy is holding up, and the trade war will eventually be resolved.  There wasn’t much in the way of new data to change that view, and for now, investors seem content to stick with it.

Diversification has been a headwind for portfolio performance in recent quarters.  While U.S. stocks have moved higher overall, most of the gains have come from a small group of large-cap companies—especially in technology and AI-related sectors.

Over the past 12 months, the S&P 500 is up more than 14%, but the equal-weight version of the index has gained a little over 9%, reflecting how much weaker returns have been for the average stock.  Portfolios that spread their exposure across different sectors, styles, or regions have lagged those tilted heavily toward the largest U.S. growth stocks.  As a result, market-weighted index ETFs—like those tracking the S&P 500—have outpaced more broadly diversified or risk-aware strategies.

So, is now the time to give up on diversification?  Probably not.  While markets often reward concentration for a time, history shows that leadership eventually rotates.  In the five years following the tech bubble peak in 2000, for example, the top 10 stocks in the S&P 500 trailed the rest of the index by more than 40%.  Today’s environment may feel different, but the underlying principle still holds: diversification tends to feel least rewarding just before it starts to matter most.

That’s all for now.  Have a great weekend and invest wisely my friends.