| Income Builder Model Portfolio |
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| Monthly Portfolio Review: July 2026Publication date: August 3, 2026 |
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| | | Current portfolio holdings |
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| | FOR SUBSCRIBER USE ONLY. DO NOT FORWARD OR SHARE. |
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| | | The breakdown of the ceasefire agreement with Iran led to higher oil prices, upward pressure on interest rates, and significant market rotation in July. While the S&P 500 was essentially flat (-0.1% total return), the largest sector in the index, Technology, underperformed significantly, declining 8%. Energy stocks soared on higher oil prices, advancing 12%. The Income Builder portfolio outperformed, generating a 2.0% total return this month. On a year to date basis, the portfolio has returned 12.4%, versus 10.1% for the S&P 500. The portfolio’s oil and gas positions, Permian Resources (PR) and Diamondback (FANG), generated mid-teens returns, while Blackstone (BX) saw significant upside after a strong quarter. With a durable resolution to the Iran conflict still elusive, we continue to favor the portfolio’s Energy exposure, while the otherwise healthy growth backdrop supports upside across the broader portfolio.
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The Income Builder portfolio generated a total return of 2.0% in July, outpacing the S&P 500 Index return of -0.1%. On a year to date basis through the end of the month, the portfolio has returned 12.4%, versus the 10.1% return of the S&P 500.
The top performing positions in the portfolio in July were Permian Resources (PR), which returned 16%; Diamondback Energy (FANG), which returned 15%; and Blackstone (BX), which returned 9%.
The worst performing positions in the portfolio this month were Texas Instruments (TXN), which returned -7%; WEC Energy (WEC), which returned -6%; and Mid-America Apartments (MAA), which returned -4%. |
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Combat resumes
The most important market development in July was the renewed outbreak of combat between the United States and Iran.
In last month’s report, we discussed the collapse in oil prices that followed the Memorandum of Understanding between the two countries. The agreement reopened the Strait of Hormuz and created hope that a more durable resolution to the conflict was taking shape.
Unfortunately, that optimism proved premature.
Fighting resumed in July, once again disrupting the movement of energy supplies through the Persian Gulf. Crude oil prices reversed sharply higher as traders rebuilt the geopolitical risk premium that had disappeared following the June agreement.
At the end of June, crude prices had dipped below $70 per barrel, their lowest level since February. By the end of July, crude oil had risen 22% to approximately $85 per barrel. |
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Crude Oil($/barrel - Last 12 Months) |
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Energy stocks responded accordingly. The Energy sector advanced 12% in July, making it the best-performing part of the S&P 500 by a wide margin.
The speed of the reversal was striking. Energy had been the worst-performing sector in June, falling 5% as the market anticipated a normalization of oil flows. One month later, it was the clear market leader.
As we discussed last week in the 76report (Prepare, Don’t Predict: Investing Amid Renewed Middle East Turmoil), the whipsaw in energy serves as a good reminder of the inherent uncertainty surrounding geopolitical events.
It also illustrates why maintaining exposure to Energy can be valuable even when the immediate geopolitical outlook appears to be improving.
A more complicated inflation picture
The increase in oil prices came just as the inflation outlook appeared to be improving substantially.
The June inflation reports, published in July, showed a meaningful decline in headline inflation, largely reflecting the earlier collapse in energy prices. Core inflation also appeared increasingly contained, with shelter and several service categories showing signs of moderation.
These reports provided evidence that the restrictive monetary policy of the past several years was finally having its intended effect.
But inflation data is backward-looking. The June reports captured the decline in oil prices that followed the temporary peace agreement. They did not reflect the renewed fighting or the sharp rebound in energy prices during July.
This does not mean the inflation improvement has been completely reversed. A rise in oil prices does not automatically translate into persistent inflation, particularly if the increase proves temporary.
But higher oil prices do affect the economy indirectly through various channels, lifting transportation and other operating costs across sectors.
Impact on interest rates
Interest rates moved higher in July as rising oil prices led to diminished expectations for a shift toward easier monetary policy.
The 10-Year Treasury yield increased more than a quarter-point, from 4.44% at the end of June to 4.71% at the end of July. |
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10-Year Treasury Yields—Last 12 Months(Source: FactSet) |
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At its mid-July meeting, the Federal Reserve left the short-term fed funds rate unchanged at the 3.5% to 3.75% target range.
But with three voting members of the Federal Open Market Committee (FOMC) dissenting in favor of higher rates, the debate has moved away from when the Fed might cut rates and toward whether further tightening may become necessary.
That represents an important change in market psychology. Only a few months ago, many investors expected declining energy prices and moderating inflation to create a relatively straightforward path toward lower rates.
Now, with One-Year Treasury yields slightly higher than 4%, at least one quarter-point interest rate hike within the next 12 months is priced into Treasuries. |
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1-Year Treasury Yields—Last 12 Months(Source: FactSet) |
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Economic resilience
The economic data published during July also gave the Fed little reason to move aggressively toward lower rates.
The preliminary second quarter GDP report suggested that underlying domestic demand remained healthier than the headline growth rate initially implied. Consumer spending continued to expand, while business investment remained solid.
Investment in equipment and technology infrastructure was an especially important source of support.
The enormous spending associated with data centers, semiconductors, electrical infrastructure and the broader AI buildout is not just a stock market narrative. It is having a measurable impact on capital investment throughout the economy.
The continued strength of consumer spending and business investment means the economy is not sending the Fed an urgent signal that lower rates are needed.
That is encouraging from an earnings and recession-risk perspective. But it also means interest rates may remain elevated for longer than investors had hoped, with the Fed likely less nervous about triggering an economic contraction.
A flat market masks a major rotation
Against this backdrop, the S&P 500 generated an approximately flat return in July. That seemingly uneventful result obscures a dramatic rotation beneath the surface.
The Energy sector, as noted, advanced 12%, followed by a 6% return from Financials. Meanwhile, Technology declined 8% and was the most significant detractor to returns. |
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From a sector perspective, the most notable aspect of the month was that the S&P 500 remained approximately flat despite severe weakness in tech, even though tech now represents nearly 40% of the index.
Investors did not abandon the market altogether. They moved capital from one part of the market to another.
This arguably represents healthier market breadth than an environment in which nearly all returns depend on a small group of mega-cap companies.
But the forces driving the rotation were not entirely favorable.
Energy benefited from geopolitical instability. Financials benefited in part from higher interest rates and a steeper yield curve. Defensive sectors benefited as investors became more cautious.
The market became more diversified, but it did so largely because the macroeconomic backdrop became less comfortable.
AI shakeout
Technology was the clear casualty of the July market environment. The sector declined 8%, with some semiconductor, hardware and AI-infrastructure stocks falling substantially more than the sector average.
There were two interconnected sources of pressure.
The first was interest rates.
Higher long-term bond yields reduce the present value of earnings expected far in the future. This effect is especially significant for high-growth companies whose valuations depend on many years of future expansion.
The second was growing scrutiny of AI capital spending.
The largest Technology companies continue to commit extraordinary sums to data centers, processors, networking equipment and electrical infrastructure. The scale of this spending demonstrates management teams’ confidence that AI will become a major source of future growth.
But investors are increasingly interested in proof that the spending will generate an adequate return. This focus became especially important during July’s earnings season.
Companies that demonstrated strong cloud demand and visible AI monetization were treated more favorably. Companies that increased capital spending without providing equally compelling evidence of near-term financial returns came under pressure.
The path forward
The short-term trajectory of markets will likely continue to depend heavily on the Iranian conflict.
A credible and lasting agreement that restores normal shipping through the Strait of Hormuz could cause oil prices to retreat, improve the inflation outlook and give the Fed greater flexibility. That scenario could provide meaningful relief to Technology and other interest rate sensitive assets.
Without such an agreement, energy prices may remain volatile, interest rate relief could be delayed, and investors may continue to favor businesses offering immediate cash flow over those whose valuations depend primarily on distant growth.
But while uncertainty around Iran, oil and interest rates represents a major headwind, investors should not lose sight of the broader backdrop of healthy economic growth and sustained technology-related investment.
The strong results recently reported by both Microsoft (MSFT) and Amazon (AMZN) provide important evidence that the AI infrastructure buildout is being supported by genuine customer demand.
MSFT reported quarterly revenue of approximately $90 billion, up 18% year-over-year. Cloud services revenue, which increasingly represents demand for AI compute capacity, grew 43%.
AMZN’s cloud business delivered even sharper acceleration. Amazon Web Services (AWS) revenue increased 37% to $42 billion—its fastest growth in more than four years.
Management indicated that much of its available computing capacity for 2027 has already been reserved by customers, with significant commitments extending into 2028.
These are not the results of an infrastructure buildout searching for customers. They suggest that new capacity is being absorbed rapidly and that businesses remain willing to spend heavily to gain access to advanced computing and AI capabilities.
The strong growth posted by these AI industry leaders suggest that July’s pressure on Technology stocks was more likely a reassessment of valuations, financing costs and the timing of returns—not a collapse in the underlying growth opportunity.
Markets may remain volatile as investors respond to developments in Iran, oil prices and interest rates. Yet beneath these short-term pressures, the economy continues to expand and demand for computing infrastructure remains exceptionally strong.
A resolution of the Iranian conflict could therefore produce a powerful combination: lower energy prices and interest rates alongside continued growth in AI-related investment and earnings. Even without an immediate resolution, the long-term technology and productivity story remains intact. |
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| | | The top performing positions within the portfolio in July were Permian Resources (PR), which returned 16%; Diamondback Energy (FANG), which returned 15%; and Blackstone (BX), which returned 9%.
The worst performing positions were Texas Instruments (TXN), which returned -7%; WEC Energy Group (WEC), which returned -6%; and Mid-America Apartments (MAA), which returned -4%.
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PR and FANG both benefited in July from the sharp increase in oil prices.
The two companies have similar investment profiles: large, low-cost Permian Basin inventories, strong operating execution and an emphasis on converting production into free cash flow rather than pursuing growth at any cost.
Both companies are also expected to report strong second quarter earnings this week, reflecting the higher commodity prices that prevailed throughout the quarter.
PR is expected to generate adjusted earnings of approximately $0.57 to $0.60 per share and cash flow per share of roughly $1.39. Oil production is expected to average approximately 195,000 barrels per day, toward the upper end of management’s full-year guidance.
PR’s total production will likely decline sequentially because the company deliberately curtailed natural gas and natural gas liquids output due to weaker pricing in prior quarters. This was a rational economic decision rather than an indication of operational weakness.
The outlook for those volumes should improve during the second half. New pipeline capacity and marketing agreements are expected to provide access to stronger Gulf Coast pricing, turning natural gas from a second quarter headwind into a potential cash-flow tailwind through 2027.
PR also continues to strengthen its balance sheet. The company repaid $550 million of senior notes during the quarter and may retire additional debt during the second half. Its low drilling and completion costs also provide room to pursue smaller Permian acquisitions that can be integrated into the existing portfolio.
For FANG, consensus estimates now point to adjusted earnings of approximately $5 to $6 per share and record quarterly free cash flow of roughly $2.2 billion.
Oil production is expected to reach approximately 524,000 barrels per day, near the high end of management’s guidance, with total production close to 980,000 barrels of oil equivalent per day.
The expected strength reflects higher oil prices, solid production and continued cost discipline. Importantly, FANG appears capable of increasing output without materially exceeding its capital-spending plan, allowing much of the benefit from stronger oil prices to flow through to earnings and cash generation.
Management is accelerating development of the Barnett acreage, which has the potential to become a more meaningful source of growth. FANG is also expected to reach its $10 billion net debt target during the third quarter, creating greater flexibility for debt reduction, dividends and opportunistic share repurchases.
The investment cases are therefore closely aligned. Higher oil prices should produce strong near-term earnings, while efficient operations and disciplined capital spending allow both companies to convert a substantial portion of those earnings into free cash flow.
PR offers particularly low operating costs, attractive bolt-on acquisition opportunities and meaningful upside as regional natural-gas pricing improves. FANG offers greater scale, a rapidly improving balance sheet and emerging growth from the Barnett.
Both remain well positioned, especially if oil prices remain elevated. |
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| | BX performed well in July after second quarter results exceeded expectations and reinforced the strength of its fundraising platform.
Distributable earnings were $1.52 per share, substantially above consensus expectations. Fee-related earnings increased more than 20% year-over-year, supported by strong investment performance, transaction fees and revenue generated by permanent capital products.
Fundraising was exceptional. BX raised approximately $68 billion during the quarter, bringing first-half fundraising to $137 billion and the trailing 12-month total to $263 billion.
Management believes full-year fundraising could match or exceed the company’s record 2021 level of approximately $270 billion.
This capital should translate into stronger future management fees as newly raised funds begin investing. The company foresees a return to double-digit management fee growth in 2027.
Real estate performance remains subdued, and management expects realizations to slow temporarily in the third quarter. These pressures explain why some investors remain cautious despite the strong headline results.
Nevertheless, the quarter demonstrated the advantages of BX’s scale and diversification. Strength in private equity, infrastructure, credit and transaction activity more than offset weaker areas, while the record fundraising cycle provides substantial visibility into future fee growth.
The combination of better-than-expected earnings, strong investment performance and an approaching acceleration in management fees strengthened the long-term investment case. |
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TXN declined in July, broadly in line with the weakness across Technology and semiconductor stocks. But the share price move contrasted with substantial progress in the underlying business.
Second quarter revenue increased 23% year-over-year to $5.46 billion, exceeding the high end of management’s guidance. Earnings per share reached $2.14, ahead of expectations, while gross and operating margins also came in stronger than anticipated.
Management’s third quarter outlook was similarly encouraging. The midpoint of revenue guidance implies approximately 8% sequential growth—above normal seasonal patterns—while projected earnings were roughly 10% ahead of prior consensus expectations.
The recovery is also becoming increasingly broad-based.
Industrial revenue increased approximately 30% year-over-year, supported by aerospace and defense, energy infrastructure and test-and-measurement demand. Automotive revenue grew at a mid-teens rate as inventories at several customers became increasingly lean, particularly within electric and hybrid vehicles.
Data centers represent an especially promising growth opportunity. Revenue from this market approximately doubled from the prior year and increased 20% sequentially.
TXN supplies power-management chips that regulate and distribute electricity throughout servers and AI computing systems, giving the company meaningful exposure to the AI infrastructure buildout without competing directly in advanced processors.
The financial outlook is also improving as TXN emerges from a multi-year investment cycle. Trailing free cash flow increased to approximately $6.5 billion from $1.8 billion a year earlier.
Capital spending is declining from the unusually elevated levels of recent years, while revenue growth allows the company to absorb the fixed costs associated with its expanded domestic manufacturing footprint.
TXN may continue to trade with the broader semiconductor sector in the short term, particularly after its strong advance earlier in the year. But July’s results demonstrated that the company is gaining share, benefiting from recoveries in Industrial and Automotive, and developing a meaningful AI-related data-center business.
The combination of accelerating revenue, improving margins and a transition toward substantially higher free cash flow defines the long-term investment case. |
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| | WEC came under some pressure in July as higher interest rates weighed on Utilities, despite reporting strong second quarter results.
Adjusted earnings were $0.91 per share, well ahead of the $0.82 consensus estimate and up from $0.76 a year ago.
The improvement reflected stronger utility operations, higher earnings from transmission, and increased contributions from infrastructure investments. Management reaffirmed its full-year earnings guidance.
The most important long-term development remains the increase in electricity demand from data centers. Microsoft’s Wisconsin facility entered service in April, helping large commercial and industrial electricity deliveries increase 9.5% on a weather-adjusted basis during the quarter.
WEC believes expansions by Microsoft and other customers could ultimately add another 4 to 5 gigawatts of data-center load. This would require substantial investment in generation, transmission and distribution infrastructure, creating a potentially significant source of regulated earnings growth.
WEC is also evaluating new generation to replace power currently purchased from the Point Beach nuclear facility. This could add another source of capital investment and rate-base growth over the next several years.
July’s weakness therefore reflected broader interest-rate and regulatory concerns rather than disappointing operating performance. Strong earnings, growing data-center demand and a substantial infrastructure investment opportunity continue to support the long-term outlook. |
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MAA declined modestly in July as higher interest rates pressured REITs and investors reacted to a somewhat softer outlook for rent growth.
The quarter itself was solid. Core funds from operations were $2.08 per share, slightly ahead of expectations. Same-store expenses increased only 0.8%, allowing net operating income to outperform despite weaker revenue and occupancy.
Leasing conditions are improving, but more slowly than management anticipated. Blended lease rates increased 0.7%, compared with a 0.3% decline in the first quarter. New-lease pricing improved 170 basis points sequentially, while renewal increases remained strong at 5.2%.
Management reduced its same-store revenue and NOI outlook because prospective residents remain price-sensitive and several markets are still absorbing elevated apartment supply. However, it maintained the midpoint of full-year core FFO guidance at $8.53 per share, supported by expense control and contributions from recently developed properties.
The longer-term supply-and-demand picture continues to improve. Apartment absorption across MAA’s markets exceeded new deliveries during the first half, while construction activity is slowing. Management expects third-quarter blended pricing to improve sequentially—an unusual seasonal pattern that would suggest the recovery is gaining momentum.
MAA is also generating attractive returns from internal investments. Apartment renovations are producing average rent increases of approximately $110 per month on an investment of just over $5,000 per unit, representing a cash return near 25%.
July’s weakness reflected disappointment that the Sunbelt apartment recovery is taking longer than expected, compounded by rising Treasury yields. But demand remains healthy, new supply is declining and MAA’s strong balance sheet supports continued development and share repurchases. |
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| | Digital Realty Trust (DLR) |
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| | Diamondback Energy (FANG) |
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| | Mid-America Apartment (MAA) |
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| | Strategy 8% Perpetual Pref (STRK) |
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| | The 76research Income Builder Model Portfolio is intended for income-oriented investors and managed to generate an overall yield that is materially higher than broad equity indices. The portfolio includes stocks with above average dividend yields from a cross section of industries. While investments are screened for their income and income growth characteristics, specific holdings are chosen based on valuation and general business quality, growth and risk considerations. |
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| | FOR SUBSCRIBER USE ONLY. DO NOT FORWARD OR SHARE. |
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