by Jason Bodner
July 21, 2026
Benoit Mandelbrot discovered fractals – those infinitely repeating patterns found in nature, like snowflakes, coastlines and tree branches. He did the same thing with markets. He found prices don’t flow smoothly. They cluster, stall, and lurch. In between, there are quiet stretches, looking something like this:
Mimicking life and investing, I call these times – when nothing seems to happen – “Congestion Zones.”
That’s where we are now. The question every investor seems to be asking right now is the same one: Is this a speed bump, or a warning sign? For answers, let’s look at what the data actually says.
Let’s start with what’s working in the market now. Corporate earnings remain exceptional. Last quarter, 85% of S&P 500 companies beat earnings estimates, well above the 10-year average of roughly 73%. The business cycle hasn’t changed, but the market’s digestion of the data has become complicated. The selling in technology and semiconductor names over the past several weeks has been violent, choppy and clumpy. Good companies beat earnings and get sold anyway.
That type of behavior could be forced liquidation, and the margin debt data tells us where it’s coming from. Investors collectively borrowed $1.5 trillion to buy stocks as of June 2026. That’s a record – by a wide margin: It’s 49% more than a year ago, and 60% higher than the prior peak, set in October 2021.
Here’s how the margin machine works: Brokers lend clients money against their portfolio, charging anywhere from 5% for large institutional accounts to over 10% for retail clients. At a blended rate of around 7.5%, that’s roughly $112 billion in annual interest flowing to brokers on borrowed capital.
The broker holds leveraged securities as collateral. As long as account equity stays above the maintenance requirement, usually 25% to 30% of the portfolio’s value, the loan stays in place. But when markets get shaky and account values drop, those thresholds get tested fast. When a client falls below maintenance levels, the broker issues a margin call. Most can’t deposit cash fast enough, so positions get sold at whatever price the market gives. And here’s the part most investors don’t realize: Brokers don’t wait for the margin call to fail. They watch numbers in real time. When they see a client’s cushion eroding, they start making calls and quietly reducing their own exposure before our problem becomes their problem. If a client can’t cover, the broker eats the loss, so brokers are highly motivated to act early, and act fast.
In a market where $1.5 trillion in borrowed money is concentrated within a handful of high-momentum names, that dynamic can cascade quickly. One fund gets a call and sells chip stocks to cover. That selling pushes chip prices lower. That triggers another fund’s sell threshold. More selling follows.
To me, that’s what the recent run of sloppy chip selling looks like.
We saw the same pattern in 2021. Margin debt peaked at $935 billion in October of that year. The names hit hardest over the following months were those which ran up the most. Over the next 14-months, $328 billion of margin debt came out of the system. The S&P 500 fell roughly 20% over the same period. The correlation was tight, and the selling was ugliest in the names carrying the most embedded gains.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Add to this the macro headwinds arriving all at once. Iran and the U.S. are exchanging strikes. The Strait of Hormuz is back in play, sending oil from $71 to $84 in three weeks. Senator Lindsey Graham’s sudden passing opened a Senate seat that could shift that chamber’s balance, adding political uncertainty on top of everything else. A Democratic Senate shift would put AI regulation back on the table, a direct headwind for the sector carrying the most margin debt. SpaceX has now dipped below its IPO price.
So, here is my honest forecast: August and September are the two-weakest months on the calendar historically, averaging losses since 1990. In mid-term election years, the normal seasonal weakness gets amplified. Most of the year’s volatility arrives before October. But here is where the data gets interesting.
The Big Money Index (BMI) rose more than five-points in four-sessions last week, even as NASDAQ was falling. On Thursday, the day the NASDAQ dropped nearly 1.5%, institutional inflows came in at one of the strongest single-day readings of the year. Prices falling while institutional conviction rises is not a market breaking down. It is a market re-pricing several categories of assets.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Since 1990, there have been 28-instances where the BMI rose sharply in July while the NASDAQ fell, outside of genuine crisis years. One-year later, the market was higher in every single instance, averaging a gain of over 15%. In mid-term years specifically, seven comparable setups produced an average one-year gain of nearly 22%, with a perfect win rate at both six-months and one year.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The rotation last week pointed toward where patient capital is moving. Banks, insurers, and capital markets firms saw the broadest and strongest buying of any sector. Cybersecurity and enterprise software attracted consistent inflows within technology. Staffing firms, logistics companies, and freight operators accumulated quietly in industrials. Two distinct real estate themes saw steady buying: industrial and logistics properties tied to AI infrastructure demand, and health-care properties driven by demographics.
The fourth-quarter of mid-term years has averaged 7% gains with an 88% positive rate since 1926. Since 1950, the S&P 500 has averaged a 36% one-year forward return off its midterm year lows. The leverage will come out of the system. The uncertainty will eventually clear. The companies doing the actual work of building the next era of technology are still doing that work.
Markets always move, up or down. They always will. William Gibson said, “The future is already here. It’s just not evenly distributed.” Right now, money flows are telling you exactly where it’s accumulating.
All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.
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Sector Spotlight by Jason Bodner
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Jason Bodner
MARKETMAIL EDITOR FOR SECTOR SPOTLIGHT
Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation and distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner
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