ζ Portfolio Update: July/26 Rebalancing
Monthly Portfolio Rebalancing
Where Jun's Money Actually Went
AI Stocks Fell and the Small Caps Took the Lead
AI stocks dragged the S&P 500 into the red in June, and the parts of the market everyone ignores quietly took the lead.
The All-Time High That Reversed
The S&P 500 made fresh all-time highs on June 1 and 2, then fell and finished the month down. AI firms mostly declined and pulled the index lower with them.
The Rotation Underneath the Headline
But the index is not the market. While large-cap AI sank, the Nasdaq and other growth and equity indexes rose. Mid- and small-caps gained for the month, extending their 2026 lead over large-caps. Value stocks also closed higher and kept outperforming.
The Assets That Beat Rate Fear
Real estate securities rose in June despite all the inflation and rate talk, with some indexes near multi-year highs. International equities fell less than US large-caps and lead for the year.
Follow the Trend, Not the Index
One falling headline index hid green almost everywhere else. Breadth was positive in small-caps, value, real estate, and international, so a trend-following process stays fully invested where trends are rising and minimally exposed where they are not.
Judge your portfolio by where the trends actually are, not by the one number on the screen.
The 3 Numbers That Could Turn the Trend
Inflation Just Wiped Out a Full Year of Raises
Inflation just erased more than a year of American wage gains, and it is one of three numbers that could flip the market’s trend.
The Inflation Gauge That Won’t Cool
The Fed’s preferred measure, the PCE price index, rose 0.4% in May, same as April. Over the year it climbed 4.1%, the highest since April 2023 and more than twice the Fed’s target. Core PCE sits at 3.4%.
The Confidence That Came Back
Consumers felt better as gas eased. Michigan sentiment rose to 49.5 in June from 44.8 in May, and five-year business expectations jumped 16%. But sentiment is still 13% below February, before the Iran conflict began.
The Raise That Inflation Ate
Here is the squeeze. In May, prices rose 4.2% year over year while hourly earnings rose just 3.4%. Real earnings fell 0.7%, the worst since February 2023, back to their January 2025 level.
Watch the Catalysts, Trade the Trend
These are the three catalysts that could change the trend: prices, consumers, earnings. With PCE at 4.1% and real earnings down 0.7%, the pressure is real, but pressure is not a signal. A systematic process does not trade the forecast. It watches these gauges for context and acts only when the trend itself turns. Know the catalysts, follow the trend.
The Alpha Hedge AI Algo portfolio closed June down 4.4%.
This is the system working as designed, not failing. Every month it scans the S&P 500 and holds exactly one position: Alpha when the cycle reads constructive, Hedge when it does not. Long only, ETFs, one decision a month. May’s read was risk-on and the Alpha position delivered 13%. In June the trend weakened and the portfolio gave some of it back.
That is the honest shape of trend following. A strong month is often followed by a give-back when the regime shifts, and the discipline is to act on the signal rather than defend a forecast. The strategy is now down 10.8% year to date, a real drawdown after a 16.8% fall in March, and the process does not hide from that. It sizes to the cycle, takes the loss when the trend says to, and waits for the next constructive read rather than forcing a position the math does not support.
The edge was never avoiding every down month. It is following a regime you can measure and staying disciplined when it turns against you.
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