The modern market has a remarkable talent for turning every technology-driven swing into breaking news. Wisdom, however, isn’t found in dancing through the storm—it’s found in standing quietly in its eye. That’s where our technical gauges continue to reside: disciplined, confident, and fully invested.
Order in the Court: Kevin Warsh Takes the Stand, and the Market Delivers Its Own Verdict
Kevin Warsh spent two days on Capitol Hill this week doing his best impression of a man who has never once been caught off guard by a question — which is impressive, considering he was fielding them roughly six hours after the government handed him a surprise piece of evidence. Wall Street, for its part, listened to the testimony, nodded along, and then went and did something else entirely by Friday. Call it a hung jury: the S&P 500 dropped 1.6% on the week, the Nasdaq fell 2.9%, and the Dow lost 0.9% — the market's first losing week in three, delivered with all the drama of a verdict nobody saw coming until the foreman started reading.
Treasuries told a calmer story. The 10-year yield eased to 4.55%, the 30-year held steady at 5.06% — still parked just above that psychological 5% line from last week, but no longer racing higher — and the 2-year ticked up modestly to 4.18% before easing back. In plain English: bond traders heard the same testimony everyone else did, read the same inflation data, and decided the appropriate response was a shrug rather than a subpoena.
Sworn Testimony: What Actually Moved the Market
The Star Witness Takes the Stand. Warsh delivered his first semiannual Monetary Policy Report as Fed Chairman — House Financial Services on Tuesday, Senate Banking on Wednesday, the same script read twice for two different juries. He pledged that "the inflation surge of the last five years will be a thing of the past," promised "no tolerance for persistently elevated inflation," and rolled out five newly formed task forces — on communications, balance sheet policy, economic data, productivity, and inflation frameworks — stacked with names like Marc Andreessen and Doug McMillon, which is either a serious effort at institutional reform or the most star-studded expert-witness panel a central bank has ever assembled. He spent a fair amount of time dodging lawmakers' attempts to bait him into commentary on politics — a witness who knows exactly which questions to answer: "not applicable, Your Honor."
Exhibit A: The Evidence That Beat Him to the Podium. Headline inflation fell 0.4% for the month amid lower gas prices, the sharpest monthly drop since April 2020, pulling the annual rate down to 3.5% from 4.2% in May and blowing through the 3.8% consensus.
Core CPI came in flat on the month, with the year-over-year rate cooling to 2.6% from 2.9%. Producer prices unexpectedly declined the same week, and jobless claims for the week ended July 11th came in at 208,000, better than forecast. Whatever Warsh was planning to say about the inflation fight, the data had already testified on his behalf — Exhibit A, entered into evidence before the witness even sat down.
Character Witnesses: The Banks Take the Stand. As if Tuesday needed more testimony, all five of America's largest banks reported the same morning, and every single one beat estimates. JPMorgan posted $21.2 billion in net income — the highest quarterly profit any U.S. bank has ever recorded — with EPS of $6.14 against a $5.85 estimate and revenue of $58 billion against $50.2 billion expected. Goldman Sachs nearly doubled its year-ago earnings per share, helped along by fees from June's blockbuster SpaceX IPO, and Wells Fargo posted $2.00 in EPS against a $1.72 estimate. It was, by any measure, a murderers' row of character witnesses testifying that the U.S. consumer and corporate borrower are both still standing.
The Surprise Witness Nobody Subpoenaed. Just when the week looked settled, the defense called an unexpected witness: a Chinese AI lab named Moonshot released a lower-cost AI model called Kimi K3, and by Friday morning semiconductor stocks across three continents were in freefall. The Philadelphia Semiconductor Index tumbled into bear-market territory as the index fell nearly 10% on the week — its third decline in four weeks — Korea's SK Hynix hit a 15% one-day decline, and memory stocks led by Micron and Sandisk fell 13% and 29% on the week.
Next Week's Docket
Earnings season keeps rolling with Alphabet, Tesla, Schwab, Intel, IBM, and Amex, and a broader cross-section of Corporate America taking the stand. But the case everyone's really waiting on is the FOMC meeting July 28th–29th — Warsh's next rate decision as the sitting judge rather than the witness. With inflation cooling faster than expected and the semiconductor sector still finding its footing, that meeting has quietly become the actual verdict this week's testimony was only a preview of.
Adjourned
The S&P remains within roughly 3% of its June record, the VIX sits in the mid-teens, and credit spreads remain calm — a market that heard a chaotic week of testimony, digested a genuine inflation surprise, and mostly held itself together apart from one very loud objection from the semiconductor sector. Warsh got through his first cross-examination without incident. Whether the actual ruling on July 29th agrees with the tone he struck this week is the only exhibit that will matter.
“I can't think, Mr. Chairman, of a more consequential change to the US and global economy in my adult lifetime than the surge of investment and the potential in around A.I.”
—Federal Reserve Chairman Kevin Warsh, Senate Banking Committee on Fed's Semiannual Monetary Policy Report, Jul 15, 2026.
Perspectives by Phil Wool, PhD
Amateur Stock Traders May Underestimate Drawdown Risk
“The tour we’ve taken through the last century proves that market irrationality of an extreme kind periodically erupts…investors wanting to do well had better learn how to deal with the next outbreak.”
—Warren Buffett
Markets may be staring down escalating geopolitical tensions, resurgent inflation, and broadening concerns about the disruptive potential of AI, but you’d never know it looking at the S&P 500 Index, which has felt virtually unstoppable as we cross the halfway mark in 2026. At the end of June, the index was trading just off an all-time high, up 10% through the first six months of the year, after gaining almost 18% in 2025. As portfolio managers, we love to see stocks riding high and clients getting the best of it. But we see ourselves first and foremost as risk managers, and from that perspective we’re always thinking about downside risk: those drawdowns that inevitably rain on the bulls’ parade.
Nobody reading this was invested during the mother of all crashes in 1929, when US stocks fell by over 86%, though I’m sure most of us have cited the Great Depression as an example of tail risk lurking in the distribution of historical stock returns. Of course, it’s one thing to talk about drawdowns like that one; it’s another thing to live through a crash with skin in the game. Investors active today will likely have a vivid memory of the Global Financial Crisis, when the S&P 500 fell by more than 55%. But what about those who only started trading stocks in the last decade?
Younger Investors? They Don’t Know What a Real Drawdown Looks Like!
Worst Drawdown Observed by Investor Entering Market in a Given Year, Jan. 1960 – Jun. 2026
Source: Rayliant Research, as of Jun. 30, 2026.
To answer such a question, in the graph above, I consider the case of investors who first entered the S&P 500 at different times, inserting those hypothetical investors at five-year intervals and simulating their buy-and-hold performance through June 2026. In particular, I’m focused on drawdowns, and I show each investor cohort’s “worst” drawdown measured in two different ways.
First, I consider the worst drawdown to be the deepest drawdown. An investor in the market since 1980, for example, was around for that GFC market crash, so he has that 55% drawdown under his belt. Another way of thinking about the worst drawdown is in terms of duration: how long did it take for stocks to return to their earlier high-water mark after losses began to rack up? For that investor who started trading in 1980, the longest drawdown was the bursting of the dot-com bubble, which lasted just over six years from peak to full recovery.
Fast forward a little and we find that an investor beginning her market journey in 2005 still experienced the GFC as the deepest drawdown but didn’t suffer through the six years of clawing back, post-internet bubble. In her memory, the GFC drawdown will have been the deepest and the longest, persisting for around four and a half years before the S&P 500 started making new highs. Skip ahead a bit more and an investor entering between 2010 and 2020 was lucky enough to miss the financial crisis but still endured the COVID crash, a 34% drawdown—albeit one that was over in a few months. The longest drawdown for this cohort was the two-year slump around 2022 Fed rate hikes.
This brings us to the last hypothetical group: investors who entered the market—or who only began paying attention to their portfolios—starting in 2025. The biggest drawdown this cohort experienced was a 19% decline amid “Liberation Day” trade-war anxieties, from which stocks fully recovered in just about four months. It’s probably hard for such an investor to imagine the longest drawdown in the full history I’ve depicted, a true bear market suffered against the backdrop of the 1973 oil crisis and economic stagflation, which dragged on for over seven years!
One final point worth considering, now that we’ve seen how memory will naturally differ across investor cohorts, is that there’s something of an asymmetry between the magnitude of the loss suffered in a drawdown and the return required to get back to even. Take, for example, the 2025 group’s 19% drawdown: It took a relatively modest +23% return for stocks to erase their losses. The 55% drawdown sustained amidst the GFC, by contrast, required an astonishing +123% gain to make the affected investors whole. In light of that kind of disparity, it couldn’t hurt for all of us, regardless of when we started investing, to work through some of the math of the market’s history.
Disclosure: This material is for informational purposes only and should not be considered investment advice. An investor should consult with their financial professional before making any investment decisions. The opinions contained herein are subject to change without notice and do not necessarily reflect the opinions of Rayliant Investment Research. Indices cannot be invested in directly and are unmanaged. Worst drawdown calculations are hypothetical. Calculations are based on past market results using the worst drawdown as the largest drawdown with no trading, using a five-year period.
Advisory services offered through Sowell Management, a Registered Investment Advisor. The views expressed represent the opinion of Sowell Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and non-proprietary sources that have not been independently verified for accuracy or completeness. While Sowell Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sowell Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.
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WEEK AHEAD
July 20-24, 2026
Weekly Market Commentary:
Order in the Court: Kevin Warsh Takes the Stand, and the Market Delivers Its Own Verdict
Sworn Testimony: What Actually Moved the Market
Next Week's Docket
Adjourned
Perspectives by Phil Wool, PhD
Amateur Stock Traders May Underestimate Drawdown Risk
Younger Investors? They Don’t Know What a Real Drawdown Looks Like!
Worst Drawdown Observed by Investor Entering Market in a Given Year, Jan. 1960 – Jun. 2026
Advisory services offered through Sowell Management, a Registered Investment Advisor. The views expressed represent the opinion of Sowell Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and non-proprietary sources that have not been independently verified for accuracy or completeness. While Sowell Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sowell Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.