This edition of Market Factors starts with an important interpretation of recent market volatility with significant practical investment implications. Section two covers a remarkable science fair featuring fusion power and moon infrastructure. I confess to an embarrassing hobby in the diversion and there’s quick hits as always.
Momentum, not tech, out of favour
Wells Fargo strategist Ohsung Kwon made the important distinction between a factor sell-off and a fundamental sell-off. The upshot is that we’re not seeing an AI pullback – it’s more complicated than that.
The common interpretation of recent volatility is that the AI market bubble is wobbling. But if this were the case, why are infrastructure, renewables and rare earths getting hit just as hard? For Mr. Kwon it means that markets are experiencing a sell-off in the momentum factor: stocks chosen for the highest price and earnings growth.
This might sound like an academic observation but it has extremely relevant practical implications for investors. It means that large investors, notably algorithmic trading funds like CTAs (commodity trading advisors, Mr. Kwon pays more attention to these than any major strategist I know), are broadly selling the stocks that were up the most. They were not specifically questioning the fundamentals future of AI stocks.
The strategist noted that June saw 2027 earnings expectations for semiconductors improve by roughly 8.0 percentage points, more than any other sector. This provides further evidence that market volatility in the tech sector was not driven by fundamentals.
Mr. Kwon offered a roadmap to clients for tech earnings season. If the hyperscalers report improved ROI (return on investment) on data centre spending and continued spending, then semiconductors should outperform and the Nasdaq should beat the S&P 500.
If ROI is strong but capex set to slow, hyperscaler stocks will outperform semiconductors and AI-related hardware. Weak ROI, higher capex means semiconductors should outperform the hyperscaler stocks and investors should begin to move assets out of tech. Lower ROI and weak capex means a risk-off environment with most asset prices headed south.
Most important science fair
BofA Securities quant strategist Nigel Tupper added to the discussion with some promising market precedents. In a Tuesday report he noted that global semiconductor stocks averaged a 44.3 per cent return in the 12 months after a significant pullback, provided a recession did not occur. Performance averaged 11.9 per cent even if a recession happened.
My main takeaway here is that the tech rally is less threatened than I thought. This does not mean AI stocks won’t be truly tested in the months ahead, but we also do not appear on the edge of a March 2000 precipice.
As a quick aside, I keep seeing stories projecting huge increases in electricity prices where data centres are built. The concern is understandable but for investors I think it misses the point. There’s a new acronym, BYOP, that stands for bring your own power. New data centres won’t just drain the grid like giant parasites, they will also construct power generation facilities. This brings investment opportunities in sectors like natural gas turbines, (GE Vernova GEV-N is printing money selling these, even though its stock got walloped Wednesday after reporting guidance that didn’t quite satisfy lofty expectations), electric power equipment and eventually small nuclear reactors like the ones on U.S. military submarines.
BofA Securities expanded its Transforming World Conference with field trips and conference calls to facilitate what appears to be the nerdiest, most high stakes science fair ever. The potential technological breakthroughs presented are breathtaking but there’s no real way a research report summarizing the event can determine how many are viable.
I’ll ignore the AI-related presentations – we’ve been inundated with that subject for months – except to say that securities analyst Martyn Briggs believes that “the boring phase of AI is over” and that eye-popping applications in physical systems (like robots) are imminent.
It’s hard to pick highlights because there’s too many candidates. A company called Helion outlined a theoretical pathway to fusion energy. Another named Rigetti thinks quantum computing will be available within three years. Astrolab has developed mobility and infrastructure solutions for a moon base. Varda, in the same sector, is pioneering low gravity manufacturing techniques.
The list goes on. Matternet executives argued that drone delivery can significantly reduce shipper costs. VTOLs – vertical takeoff and landing aircraft – could form another layer of personal travel and cargo delivery.
It’s nice to be reminded that while daily newsflow makes it seem like the world is falling apart at the seams, really smart people are working on projects cool enough to improve living standards for everyone.
Scott Barlow
July 23, 2026
This Globe and Mail article was legally licensed by AdvisorStream.
© Copyright 2026 The Globe and Mail Inc. All rights reserved.
Securities and investment advisory services offered through qualified registered representatives of MML Investors Services, LLC, Member SIPC. The views and opinions expressed are those of the author(s) and may not accurately reflect those of MML Investors Services, or its affiliated companies. Local firms are sales offices of Massachusetts Mutual Life Insurance Company (MassMutual), and are not subsidiaries or affiliates of MassMutual, MML Investors Services, or their affiliated companies.
Nathan Brinkman is a registered representative and offers securities and investment advisory services through MML Investors Services, LLC. Member SIPC (www.sipc.org) Supervisory office: 8888 Keystone Crossing #1600, Indianapolis, IN 46240 (317) 469-9999. Triumph Wealth Management, LLC is not a subsidiary or affiliate of MML Investors Services, LLC or its affiliated companies. Nathan Brinkman: CA Insurance License #0C27168
