Key Takeaways
- The S&P 500 is down from its June 2026 high but not in correction territory - this is volatility, not a crash
- AI infrastructure spending questions and rich valuations (23x forward earnings) are the main drivers of the current swings, not a broad economic breakdown
- Panic-selling during a drop is the single most reliable way to convert a paper loss into a permanent one
- The right move depends on your time horizon and cash needs, not on what the market did this week
- If you're going to act, tax-loss harvesting and rebalancing are usually smarter moves than an outright exit
The S&P 500 hit an all-time high of 7,621 in June 2026, then slid more than 4% before clawing back some ground — closing around 7,533 in mid-July. Nasdaq fell over 1% in the same stretch, dragged down by chip stocks. Nvidia is off more than 10% since its May peak.
None of that is a crash. It’s not even an official correction (that’s a 10% drop from a high). But it’s the kind of chop that gets people asking me the same question I’ve fielded since 2008: should I sell?
I’ve written some version of this post during the 2008 financial crisis, the March 2020 COVID crash, and the 2022 bear market. The specific trigger changes — mortgage-backed securities, a pandemic, inflation and rate hikes, and now AI-bubble jitters — but my answer hasn’t.
Why the Market Is Swinging Right Now
This round of volatility has a pretty specific cause: doubts about whether the massive AI infrastructure spend is going to pay off fast enough to justify current valuations. Big Tech is on pace to spend $500–650 billion on AI infrastructure in 2026 alone, and the revenue those investments are generating so far covers less than half of it.
The U.S. Treasury Department has reportedly drafted an internal report warning that an AI-driven downturn could ripple across stock markets, private credit, and the utilities and data-center builders financing the buildout — explicitly drawing a comparison to the 2000 dotcom bust. That report alone doesn’t mean a crash is coming, but it’s part of why “AI bubble” headlines keep resurfacing even as spending continues.
July also has a seasonal quirk working against it: momentum-driven stocks have averaged about a 5% pullback in July over the past five years, since it’s a common month for funds to take profits after a strong first half.
None of this means the froth is gone. Nvidia alone pulled in $215.94 billion in revenue in fiscal 2026, up 65% year over year — real growth, not vaporware. The disagreement is about whether the price of that growth already assumes years of flawless execution.
I’ve Seen This Movie Before
In 2008, the Dow was in free fall and I remember writing that the urge to sell was strong, even as my own portfolio was down more than 30% that year. In March 2020, it felt like the whole world was ending along with the market. In 2022, it was inflation and rate hikes grinding the market down for months, not days.
Each time, the headlines said this time was different. Each time, staying invested — not timing a bottom perfectly, just staying in — worked out better than getting out.
That doesn’t guarantee it plays out the same way this time. But it’s the pattern I’ve watched for almost two decades of writing about this, across three genuinely distinct kinds of crises.
What Not to Do
Selling out of the market during a drop locks in a paper loss as a real one. It also requires being right twice — you have to correctly time the exit and the re-entry, and most investors (professionals included) aren’t consistently good at either.
The data backs this up: investors who sold during the 2020 COVID crash and waited for things to “feel safe” again missed one of the fastest recoveries in market history. The S&P 500 round-tripped its entire pandemic loss in about five months.
What to Actually Do When the Market Drops
Run the cash-needs test first. If you need the money in the next 1–3 years — a house down payment, tuition, a planned expense — it shouldn’t have been fully in stocks to begin with, and a downturn is a signal to get more conservative with that specific bucket, not your whole portfolio.
Keep contributing on schedule. If you’re dollar-cost-averaging into a 401(k) or IRA, a drop means your regular contribution buys more shares at a lower price. Stopping contributions during a dip is one of the more common mistakes I see — it’s the opposite of buy low, sell high.
Rebalance instead of exiting. If a drop has pushed your portfolio out of your target allocation (say, more bonds than you want because stocks fell), rebalance back toward your target rather than abandoning stocks altogether.
Consider tax-loss harvesting, not a full exit. If you hold individual positions at a loss outside a retirement account, selling those specific losers to offset gains elsewhere — while staying invested in the broader market — is a genuinely useful move during a downturn. I cover the mechanics and the wash-sale rule on the capital gains tax page.
Check your concentration, not just your total balance. If a big chunk of your portfolio is riding on AI-adjacent names specifically, a volatility spike in that theme hits you harder than it hits someone with a diversified portfolio. This is a good moment to actually look at what you own, not just the top-line number.
Keep a cash cushion outside the market. Having a few months of expenses parked in a high-yield savings account is what lets you ride out volatility without being forced to sell equities at a bad time to cover an emergency.
Things can shift quickly from here. Subscribe or follow us and I’ll update this page as the AI-spending story develops.
When Selling Actually Makes Sense
Selling isn’t always the wrong call. A few situations where it genuinely is:
- You’re holding a specific company facing real fundamental damage (not just a sector-wide selloff), and the thesis you bought it on no longer holds.
- Your time horizon changed — retirement moved up, or you need the funds sooner than you originally planned.
- Your portfolio became so concentrated in one theme (AI infrastructure, a single employer’s stock, crypto) that a single sector’s swings can meaningfully affect your finances.
In all three cases, the trigger is a change in your own situation or the underlying company — not the fact that the market had a rough week.
Looking Ahead: What I’m Watching
A few things will determine whether this settles into a normal pullback or turns into something bigger. Whether AI infrastructure spenders start showing revenue that actually catches up to the capex — Q3 and Q4 2026 earnings season will be the real test. Whether the Treasury’s draft warning becomes a public, formal position or stays an internal draft. And whether the Fed’s rate path shifts in a way that changes the “safe” return on cash versus stocks.
None of these resolve in the next few weeks. I’ll keep this page updated as the picture becomes clearer, particularly around Q3 earnings in October.
Common Mistakes to Watch Out For
I get some version of these questions every time the market has a rough stretch:
- Panicking near the bottom. The scariest-feeling days are often close to a local low, not the start of a long slide — but you can’t know that in the moment, which is exactly why a pre-set plan matters more than a gut reaction.
- Stopping retirement contributions. Pausing your 401(k) or IRA contributions during a downturn means missing out on buying at lower prices — it’s a bigger mistake than it looks like at the time.
- Checking your portfolio daily. Frequent checking makes short-term noise feel more significant than it is and pushes people toward emotional decisions.
- Confusing a sector wobble with a market crash. AI-related volatility isn’t the same as a broad recession signal — check whether the pullback is concentrated in one theme before assuming it’s systemic.
- Trying to time the exact bottom to buy back in. Missing just the 10 best market days over a decade can cut your total return roughly in half — the cost of waiting for a “clear” signal is usually higher than the cost of staying invested.
I’ve also written more about How to Invest Without FOMO: Smart Strategies for 2026 and AI Infrastructure Investing: How to Think About the Trade Behind the AI Boom.
