Photo by SpaceX on Unsplash
Family Comes First
I know that it has been two months since I added an installment of My Gut Feeling. So much has gone on that every time I began to write, I had to scrap what I was saying and begin over. To be frank, my evenings are when I craft My Gut Feeling and I have had so much going on personally, so call me selfish if you must. Though, rest assured, I never missed a day at the screen watching and trading the markets or missed a client call or meeting.
In June, every other evening was either watching the New York Knicks or Vegas Golden Knights (usually in the T-Mobile Arena). They were family events. The Knicks completed their magical journey and for the first time in fifty-three years won an NBA Championship. The Golden Knights fell short, but it was an exciting ride. Upon returning to the East, I got to spend time with my New Jersey based granddaughters, including the one who was born in January when I was still recuperating from my December surgery. Then we had a big family 250th Independence Day get-together in Lake George. Add to that some renovations in our New Jersey home. As I write I am in Wisconsin for the birth of our third granddaughter, this one being delivered by our eldest daughter Danielle.
Up util then, LakeView Asset Management accounts were performing exceptionally well, hitting all-time highs in assets under management and performance during the second quarter. Then The July Correction of 2026 hit the markets.
Why Did the Markets Correct In July?
There are many reasons for the July correction. The most significant one, most people don’t know about. So let me elucidate:
- We were due for a correction. The problem is that nobody blows a horn from a mountaintop to let you know. The S&P 500 (SPX) hit an all-time high in early June and then struggled the entire month. That was a hint that the market was due for a pullback.
- The military operations in Iran were on-again off-again. There were concerns that it might drag on for a longer period of time.
- The Space Exploration Technologies Corp., or SpaceX (SPCX) was oversubscribed, overhyped and in the fullness of time a flop. More on that later.
- Artificial Intelligence (AI) stocks which led the market rally this year (and the last few years) began to show weakness. Again, they were due for a pullback, despite strong earnings and growing order backlogs. But there was another more potent reason behind the AI pullback…
- As I have learned from a close friend and colleague, we are in the midst of a credit driven stock bull market. That market was derailed as the credit spreads (what investors are willing to pay over Treasury rates) widened. Thus, AI company credit got far more expensive. AI companies need vast amount of capital to build out AI infrastructure such as chip fabricators and data centers. Hence, the yellow and red lights flashed. The odd fact is that it became easier (not cheaper in the absolute sense) for airlines to raise debt than it was for a semiconductor company like Broadcom (AVGO) to do so.
- While the Federal Open Market Committee (FOMC) decided to leave interest rates unchanged, there were fears being spread that rates would be raised later in the year. For what it’s worth, I disagree with that opinion.
- An AI-themed hedge fund went belly up.
Let it be said that none of the foregoing was a reason to panic. It was a reason to pause, look closely at the portfolios and raise some cash, which is exactly what I did. However, we did not raise cash from the larger holdings with huge built-in capital gains, rather, I jettisoned some of our more recent purchases and smaller positions which were flattish or had small losses. The theory was that the credit spreads would contract and AI stocks would resume their upward trajectory. Also, while the Growth stocks were mired in a pullback, the Dividend oriented stocks were soaring to new heights. So, once again, I must emphasize the need for a balance approach to investing – i.e. both Growth and Dividend.
Rebound to New Highs in August
It is said that markets climb a “Wall of Worry.” Well July was the textbook “Wall of Worry”. In the context of today’s theme, the louds are lifting on the market. Why is that?
- Those credit spreads that I wrote about earlier are contracting, thereby reducing the cost of borrowing debt for AI related companies.
- It appears that the conflict with Iran is close to an end. There is not much left to the nation’s war machine and infrastructure to continue to fight. And if Iran makes a last gasp effort to fight, President Trump will just wipe out whatever is left in the terrorist nation. Crude oil prices are rapidly declining to levels not seen since February.
- Earnings, the final arbiter of stock pricing are being released and indicate strong growth and guidance.
- We corrected enough, such that buyers stepped up to put cash to work at cheaper prices
- The hedge fund mentioned earlier, liquidated its position and Ken Griffin’s Citadel hedge fund bought many of its positions.
SpaceX – A Quick Launch and Crash to Earth
Many clients phoned to ask if they should get in on the SPCX IPO or buy stocks after the IPO. I was emphatic with my response: NO!!! SPCX was heavily oversubscribed. It was a fad stock even before it came to market. My guess was that it would surge after the IPO and then fall precipitously. See the chart below
Carly and I discussed whether we would nibble on SPCX. I opined two conditions must occur before we did. First, that the company reported a decent first earnings report without much fanfare. Second, that we would buy the stock at a price below $100. We are still waiting for that second criteria to occur.
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Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC was long AVGO - although positions can change at any time. The mention of stocks are not recommendations and may not be suitable investments for your individual situation.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, (LVAM) an investment advisor representative, specializing in high-net-worth private wealth management. LVAM is a separate entity of Osaic Advisory Services, LLC, a registered investment advisor.
For more information on investing with LakeView Asset Management, LLC call us at 702-749-9343 or request more information by clicking on the contact button on the top right-hand corner of the website or by emailing Scott at scott@lakeviewasset.com or Carly at carly@lakeviewasset.com. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
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