More Volatility Is Coming

*Analyzing the markets with Richie Naso, a Wall Street veteran of over 40 years and former member of the NYSE.

Market Close 17th June, 2026.

The Russell 2000 declined approximately 0.5% this week, underperforming its larger-cap peers as investors rotated away from higher-beta areas of the market following a strong first-half run in small-cap stocks. Friday’s broad-based selloff, driven largely by weakness in AI-related technology shares and a shift toward risk reduction, weighed on sentiment — although the Russell held up better than the Nasdaq.

HYG — Junk Bond Watch

HYG finished the week little changed, continuing to trade near its recent highs despite increased volatility in equity markets. The resilience in high-yield credit suggests that investors remain comfortable with corporate credit risk and are not yet positioning for a meaningful deterioration in economic conditions.

Why it matters for stocks:

• When HYG is strong, it suggests investors are comfortable taking risk and credit markets remain supportive of equities.
• When HYG weakens, it often signals growing concern about economic growth, rising default risk, tighter financial conditions, or declining liquidity.

Source: AI-generated research summary, week of July 13–18, 2026. Stocks Sink — Joe Rennison & Katie Robertson, New York Times, July 18, 2026 (p. B5).

Corporate earnings provided a mixed but generally healthy picture this week. Large financial institutions reported solid results, reinforcing the resilience of the banking sector. However, disappointing reactions to several high-profile technology earnings and renewed concerns over stretched AI-related valuations weighed heavily on semiconductor and growth stocks. Selling pressure in many of the year’s strongest performers spread across much of the technology sector by week’s end.

Source: AI-generated bank earnings summary, week of July 13–18, 2026

The banking sector delivered one of the strongest performances of the week, with second-quarter earnings generally exceeding expectations. Strong investment banking activity, healthy trading revenue, and resilient consumer credit trends helped offset concerns surrounding net interest margins and the path of future Federal Reserve policy.

Goldman Sachs was among the week’s standout performers, reporting robust investment banking and trading results as capital markets activity continued to recover. JPMorgan Chase and Bank of America also posted solid earnings, reflecting continued strength in consumer banking and commercial lending. Regional and custody banks generally produced favorable results as well, reinforcing confidence that credit quality remains healthy despite a slowing economy.

Not every report was well received. Morgan Stanley and Citigroup produced results that fell short of investors’ elevated expectations, leading to more muted stock performance. By week’s end, Truist Financial and Fifth Third Bancorp completed the major earnings slate, giving investors a broad look at the overall health of the banking industry.

One of the more encouraging takeaways was the continued stability in credit conditions. Loan losses remained well contained, consumer spending showed resilience, and corporate balance sheets generally remained healthy. The banking sector continues to signal that the U.S. economy is slowing gradually rather than entering a significant downturn.

Richie’s View on Bank Earnings

Bank stocks continue to provide an important read on the broader economy. This week’s earnings reinforced the view that financial conditions remain constructive, with strong capital markets activity and stable credit quality offsetting ongoing pressure on net interest margins.

The strength in financials is encouraging from a market perspective. While technology stocks experienced increased volatility, banks demonstrated improving earnings momentum and helped broaden market leadership beyond the AI trade. If Treasury yields remain stable and credit quality continues to hold up, financials could remain one of the market’s stronger-performing sectors in the second half of the year.)

Analysts at BNY said in a note this week that Taiwanese stocks saw a record level of selling by foreign investors on Friday. They cited a reassessment of the valuations of the largest technology companies and fiercer competition from Chinese companies, but stopped short of projecting a deeper deterioration in the sector.

“This is not the AI or semiconductor growth story collapsing.” — BNY analysts

After an Epic Fall, IBM Faces a Long Road Back to Relevance

Source: Barron’s — Mackenzie Tatananni, p. 9, July 20, 2026 (subscription required)

IBM has been forced to reinvent itself many times in the past. After its biggest single-week wipeout on record, it will have to do so again.

Big Blue had been riding high. Yes, there were problems in consulting — as signaled by weakness at Accenture — and in software, tipped off by weakness at ServiceNow and its sector peers. But the stock was trading at an all-time high as recently as June 2, as investors looked at the company’s near-monopoly in mainframe computing, its quantum computing effort, and its prospects as an artificial intelligence winner.

They were wrong. IBM stock tumbled 25% on Tuesday, its worst single-day drop on record, following a rare pre-announcement of its quarterly results. Such a move is highly unusual for the company, which is traditionally disciplined when it comes to financial reporting. The last time IBM pre-announced earnings was in October 2008, in an effort to reassure investors during the global financial crisis.

Investors faced a different reality this time. IBM posted second-quarter earnings and revenue that missed Wall Street forecasts. While there were plenty of problems — slowing software and consulting sales and a massive reallocation of technology spending by customers toward chips, servers, and other AI needs — the biggest drag was its infrastructure business, including its legacy mainframes.

Big Blue is undoubtedly the dominant force in mainframe computing. A 2022 study by Celent, commissioned by IBM, found its Z Mainframe Servers line processed more than half of the world’s transactions by value. But that didn’t help the division in the second quarter. Infrastructure revenue fell 7%, significantly faster and harder than IBM had anticipated. Not only did fewer companies buy mainframe hardware, they also bought less of the high-margin software required for banking and credit-card payment processing.

“We did not adapt and move quickly enough, and numerous large deals failed to close on the timelines we expected, driving the majority of our shortfall.” — Arvind Krishna, CEO, IBM — letter to shareholders

The 25% drop was massive — and partly justified, even as it erased nearly $70 billion in market capitalization.

“The stock had become a crowded AI infrastructure winner and was trading near all-time highs, so any sign of execution issues was going to get punished. That said, a move of this magnitude suggests the market is now pricing in a much more prolonged slowdown than what management has implied.” — Dan O’Regan, Managing Director of Equity Trading, Mizuho Securities

Analysts were quick to move to the sidelines following IBM’s miss. Oppenheimer downgraded the stock on Wednesday and is now questioning the company’s ability to achieve double-digit software revenue growth through 2027. The 5% growth in the latest quarter was sharply below the firm’s 12% estimate.

The bigger issue may be whether IBM’s infrastructure business is being structurally disrupted. One of the most significant warning shots came in February, when AI start-up Anthropic unveiled a COBOL modernization approach for its Claude Code tool, claiming it could dramatically streamline updates to the outdated programming language that runs on IBM mainframes. Historically, the immense complexity and cost of migrating off these systems protected IBM’s highly profitable mainframe business — a protective moat AI now threatens to dissolve.

IBM stock closed on Wednesday at 16.54 times 12-month forward earnings, its lowest price-to-earnings ratio since June 2024. But as recently as June 2, the stock traded above 25 times — a premium to the S&P 500’s 21.52 times that may not have been warranted.

“Lower prices make an asset more attractive. I just caution investors that, out of all the companies I cover, IBM probably has the lowest organic growth currently and the lowest organic growth outlook. That needs to be reflected in the valuation.” — Stefan Slowinski, Analyst, BNP Paribas — rated Underperform

Shares fell 26% by Friday’s close, capping their worst week in history. Slowinski, one of the most bearish voices on the Street, says IBM’s strategy of using cash flow to acquire higher-growth software assets faces a structural challenge — all three of its major divisions — consulting, software, and mainframe — are low-single-digit organic growers, and the prospects for that improving are limited.

“The market wants proof that this is an execution stumble, not the beginning of a structural slowdown in demand. As a stock, the days of getting the benefit of the doubt are probably over for now.” — Dan O’Regan, Mizuho Securities

In the worst-case scenario, investors fear that IBM’s enterprise clients are redirecting their budgets toward AI instead of Big Blue’s traditional offerings. At best, the company was caught off guard by a sudden capital expenditure shift, as CEO Krishna asserted, and can reclaim that lost ground in coming quarters. The market is waiting for proof of which scenario it is.

What I’ll Be Focused On This Week

The items below reflect Richard Naso’s personal areas of focus for the coming week and are provided for informational and educational purposes only. They do not constitute investment advice or a recommendation to trade any security.

WATCH LIST — WEEK OF JULY 20, 2026

• Wednesday — Google & Tesla Earnings
  Key reads on AI monetization and EV demand
  
• Thursday — Initial Jobless Claims
  Ongoing monitor of labor market health
  
• Friday — New Home Sales
  Read on consumer confidence and rate sensitivity

Richie’s Take

This week’s pullback appears more consistent with a healthy consolidation than a change in the long-term trend. The technology sector has become extended after a powerful advance, making profit-taking both expected and necessary.

Expect higher-than-normal volatility as earnings season moves into full swing. The market’s reaction to corporate guidance — not simply earnings beats or misses — will likely determine short-term direction.

While caution is warranted after this week’s technology-led pullback, the intermediate- and long-term outlook remains constructive. As long as earnings remain healthy, credit markets stay resilient, and Treasury yields do not move sharply higher, pullbacks should continue to be viewed as potential opportunities rather than signs of a new bear market. Investors should remain selective, disciplined, and prepared for larger day-to-day swings as institutions reposition portfolios based on incoming earnings and guidance.

— Richie

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