Monthly Market Review — July 2026

Equities

Global equities (-0.3%) declined in July as renewed conflict in the Middle East lifted energy prices, while concerns over rich semiconductor valuations and the sustainability of AI spending prompted a broader reassessment of risk. Continued economic resilience and persistent inflation led markets to price a more restrictive path for global monetary policy, raising bond yields and placing heavy pressure on long-duration US assets. Global financial conditions tightened amid renewed strength in the US dollar, although gains partially reversed later in the month. Corporate earnings continued to support confidence in underlying business conditions, even as rising investment in AI infrastructure sharpened the scrutiny of capital demands, free cash flow, and the timing of future returns. European markets were comparatively resilient, reflecting a lower concentration of large technology companies and greater exposure to banks, industrials, and energy producers, which were supported by higher yields, increased defense and infrastructure spending, and firmer commodity prices. In Asia, semiconductor weakness, questions surrounding the Bank of Japan’s (BOJ’s) policy outlook, and volatility in the yen weighed on regional markets. China’s exports and technology investment remained strong, but weak consumer spending and property demand continued to constrain domestic growth. Beyond these cyclical pressures, ongoing changes in tariffs and trade policy increased uncertainty around costs and market access, encouraging companies to reassess supply chain resilience, sourcing strategies, and the geographic allocation of capital.

US

US equities (-0.1%) were flat in a turbulent month. Concerns about the sustainability of record AI capital spending by hyperscalers triggered a sharp decline in the stocks of semiconductor, memory, and technology hardware companies, leading growth stocks to underperform their value counterparts by a wide margin. Second-quarter GDP slowed to an annualized rate of 1.5% due to the significant drag from imports of AI-related components, although growth was buoyed by solid consumer spending and business investment. The US Federal Reserve (Fed) left interest rates unchanged in a range of 3.5% – 3.75%, as higher market-based interest rates and a dip in headline inflation gave the Fed greater latitude to keep policy stable. However, three Fed officials favored a 25 basis point (bps) hike amid concerns about stubbornly high inflation against a backdrop of resilient consumer spending and a solid labor market. According to FactSet, second-quarter corporate earnings broadly exceeded expectations. With 61% of companies in the S&P 500 Index having reported results, the blended year-over-year earnings growth rate for the index is 47.4% (28.8% after excluding the earnings of Alphabet and Amazon), well above the five- and ten-year average earnings growth rates of 15.2% and 11.2%, respectively.

Economic data released during the month was mixed. After robust job growth in April and May, hiring slowed sharply in June, with a 57,000 increase in nonfarm payrolls markedly below expectations of 113,000. The pullback was driven by the largest decline in leisure and hospitality payrolls since 2020, reflecting weaker-than-normal seasonal hiring. The unemployment rate slipped to 4.2%, and initial jobless claims were near a 40-year low. Consumer spending was resilient in June but moderated on a sizable decline in gasoline spending due to lower crude oil prices. After an outsized 1.0% gain in May, June headline retail sales rose only 0.2%; however, control-group retail sales excluding cars, gas, building materials, and food services grew at a solid 0.5% pace, signaling that underlying consumer demand remained firm. The Conference Board’s Consumer Confidence Index slipped to 90.8 in July, below expectations of 92.4, suggesting that consumers grew more cautious amid renewed geopolitical tensions and the recent surge in gas prices. Escalated fighting in Iran drove up Treasury yields and pushed mortgage rates to a 12-month high, posing headwinds for the housing market after a disappointing spring selling season.

The Institute of Supply Management (ISM) Manufacturing Index surpassed expectations and advanced to 55.6 in July — the highest level in more than four years — as strong growth in new orders boosted employment, even as the Middle East conflict strained supply chains and kept input costs elevated. In June, the ISM Services Index cooled modestly to 54.0 but remained firmly in expansionary territory. Measures of demand remained solid, and prices rose at a more subdued pace. Lower oil prices in June helped to boost the NFIB Small Business Optimism Index by the most in more than a year before escalating conflict in Iran drove energy prices sharply higher in July.

Within the S&P 500 Index (-0.1%), five of the 11 sectors posted negative results for the month. Information technology (-3.3%) was the worst-performing sector, led lower by semiconductors & semiconductor equipment (-11.6%). Industrials (-3.0%) and utilities (-2.2%) also underperformed the index. Energy (+12.6%) was the best-performing sector, while financials (+6.2%) and real estate (+2.5%) also outperformed.

EUROPE

European equities (+0.9%) rose in July. Despite the geopolitical uncertainty and elevated energy prices, the eurozone economy grew at a 0.4% quarterly pace in the second quarter, surpassing expectations. Eurozone business activity was resilient, as the S&P Global Flash Eurozone Composite Purchasing Managers’ Index (PMI) rose to 51.9 in July, from 50.0 in June, amid renewed growth of new orders. This marked the first expansion in business activity in four months, although surging oil and gas prices threatened to upend the recovery. German output increased for the first time in four months, while French business activity continued to fall, but only marginally. The European Central Bank (ECB) left interest rates unchanged, as softer inflation, benign wage growth, modest economic activity, and reduced inflation expectations lessened the need for a rate hike. However, ECB President Christine Lagarde warned that renewed conflict in the Middle East and the attendant rebound in energy prices pose upside risks to inflation. Annual eurozone headline inflation subsequently ticked up to 2.9% in July, bolstering the case for a September rate hike. The Bank of England (BOE) kept interest rates unchanged. According to LSEG, second-quarter earnings for companies in the STOXX 600 Index are forecast to increase by 20.8% from a year earlier.

The S&P Global Eurozone Manufacturing PMI edged up to 51.9 in July as factory production expanded at the fastest pace since March 2022. The S&P Global Flash Eurozone Composite PMI revealed that services sector activity returned to expansion in July after a three-month contraction, supported by a renewed increase in business activity. A slower rise in input costs and output prices curbed inflation across both manufacturing and services. The European Commission’s Economic Sentiment Indicator increased noticeably to 96.9 in July; both industry and consumer confidence rose significantly.

Germany’s (+2.5%) economy expanded more than expected by 0.2% in the second quarter, helped by stronger exports, while household consumption and capital investment struggled. Encouragingly, a sharp increase in the ZEW Indicator of Economic Sentiment in July suggested that Germany’s pro-growth reform package is beginning to bolster the economic outlook, even as escalating Middle East conflict threatened critical energy supplies to the country’s large industrial base. In the UK (+3.9%), the newly appointed Labour Party leader Andy Burnham became prime minister after Sir Keir Starmer’s resignation. GDP grew at a modest 0.1% monthly pace in May despite the impact of the Iran war, while the S&P Global Flash UK PMI Composite Output Index returned to expansionary territory in July, as the manufacturing and services sectors both recorded solid gains. Annual headline inflation fell more than expected to 2.6% in June, easing the pressure on the BOE to raise interest rates against a backdrop of weak economic growth. In the second quarter, France’s (+1.3%) economy grew by 0.2%, helped by a recovery in household spending and exports; Spain’s (+2.7%) economic growth accelerated to 0.7%, thanks to booming tourism.

PACIFIC BASIN

Pacific Basin equities (+1.0%) rose over the month. In Japan (-1.0%), inflation pressures intensified, with corporate goods prices in June rising 7.1% from a year earlier and household average annual inflation expectations for the next five years hitting a record 10.8%, reinforcing bets on further BOJ rate hikes. On the fiscal front, Prime Minister Sanae Takaichi’s administration unveiled a ¥370 trillion (~US$2 trillion) investment plan but provided limited funding details, fueling fiscal concerns over Japan’s debt trajectory and the government’s expansionary policy stance. Adding to the turbulence, persistent yen weakness — exacerbated by rising oil prices and entrenched price pressures — pushed the currency to its weakest level since 1986 and eroded the country’s purchasing power. Japan subsequently lowered its fiscal 2026 growth forecast to 0.9% from 1.3% and raised its inflation outlook to 2.2%, widening the projected primary deficit to ¥1.2 trillion (~US$7.5 billion) and intensifying pressure on the government to address the rising cost of living. The government subsequently announced that food sales tax would be cut to 1% for two years. Against this backdrop, the BOJ held its policy rate at 1%, as widely expected, but struck a cautiously hawkish tone that offered little sign of imminent tightening.

In Australia (+3.1%), the Reserve Bank of Australia (RBA) faced a difficult mix of still-elevated inflation, weakening house prices, and a surprising May trade deficit — highlighting risks from elevated interest rates — that reduced market expectations of an August hike. In contrast, higher-than-expected June employment gains reinforced labor market resilience, lifting yields to a two-month high and briefly reviving expectations for further policy tightening. However, Australia’s core inflation eased more than expected in the second quarter — largely due to lower fuel prices — prompting markets to pare back expectations for higher interest rates once again. Still, the RBA warned that persistent inflation risks and recurring supply shocks could continue to complicate the inflation-growth trade-off, with Governor Michele Bullock reiterating that the RBA remains prepared to raise rates again if this year’s tightening fails to curb inflation.

Singapore’s (+9.6%) economy remained resilient, with AI-related demand driving second-quarter GDP growth up by 5.7% year over year, above forecast but slower than 6.3% growth in the first quarter. However, elevated energy costs, softer consumer spending, and geopolitical tensions clouded the economic outlook. Core inflation rose 1.6% in June amid rising fuel costs but remained within the Monetary Authority of Singapore’s (MAS’s) forecast range. Nevertheless, the MAS unexpectedly tightened policy for a second consecutive meeting, modestly increasing the appreciation rate of its currency band to guard against upside inflation risks. It also predicted that economic growth would remain “firm” in the second half of the year and signaled further policy tightening if price pressures intensify.

Emerging markets

Emerging markets (EM) equities (-4.3%) fell in July. Asia declined, while Latin America and Europe, the Middle East, and Africa (EMEA) gained.

In Asia (-5.6%), China (+8.9%) was buoyed by significantly better-than-expected export growth of 27% year over year in June — the highest since October 2021 — due to booming global AI hardware demand and a rush by exporters to beat anticipated US tariff hikes. However, second-quarter GDP growth slowed more than forecast to 4.3% year over year, down from 5.0% in the first quarter and below the government’s target range of 4.5% – 5%. Calls for additional policy stimulus intensified, as weak investment activity and subdued consumer spending continued to weigh on economic growth. Urban fixed-asset investment declined 5.7% year over year in the first six months of 2026, and the official manufacturing PMI unexpectedly fell back into contraction in July, driven by weaker new orders, softer demand, and disruptions from typhoons. In Taiwan (-3.9%), robust AI demand and thriving trade and investment with the US helped GDP to expand by 12.9% annually in the second quarter, following 14.5% growth in the prior quarter. Notably, domestic demand contributed more to growth than net exports, although exports remained exceptionally strong, rising 40.3% year over year in June after a 51.7% increase in May. CPI Inflation in June was the highest in 17 months due to a spike in fuel and food prices. South Korea (-23.7%) plunged amid investor concerns over the sustainability of the country’s AI-driven semiconductor boom, as emerging Chinese competition in memory chips cooled AI-related demand expectations. Nevertheless, year-over-year GDP growth of 0.6% in the second quarter exceeded forecasts, signaling solid economic growth.

In Latin America (+3.6%), Brazil’s (+4.7%) inflation slowed more than expected in July, with a 4.52% year-over-year increase in consumer prices strengthening expectations for further interest-rate cuts. The US announced a steep 25% tariff on most Brazilian goods over “unfair trade practices,” making Brazil the second most heavily US-tariffed country after China. Mexico’s (+1.3%) annual inflation rate fell for the third consecutive month to 3.37% in June, the lowest since December 2020. World Cup-related spending helped second-quarter GDP to grow by 1.5% compared to the previous quarter, reversing a 0.6% contraction in the first quarter.

In EMEA (+1.7%), OPEC+ agreed to increase quotas by 188,000 barrels per day in September, a sixth straight monthly increase that unwound another layer of voluntary output cuts. Saudi Arabia’s (-0.5%) economy shrank 4.8% year over year in the second quarter, as the oil sector declined 24.7% following disruptions in the Strait of Hormuz. The non-oil sector grew modestly at 0.6%, thanks to government-led diversification initiatives that further reduced dependence on oil revenues. In South Africa (+0.6%), sharply higher fuel prices caused annual headline consumer inflation to accelerate to a two-year high of 5.0% in June.

FIXED INCOME

Escalating tensions in the Middle East, renewed investor focus on inflation, and cautious central bank messaging shaped fixed income markets during the month, pushing sovereign yields higher. Most fixed income sectors posted negative excess returns as credit spreads widened. Central banks broadly remained on hold, with the Fed and most other major central banks leaving policy rates unchanged. The Reserve Bank of New Zealand was a notable exception, raising its policy rate by 25 bps. Fixed income markets declined over the month, with the US Aggregate Index returning -1.30% and the US dollar-hedged Global Aggregate Index returning -1.02%, both modestly underperforming comparable government bonds. US TIPS fared somewhat better at -0.68%, while 10-year breakeven inflation rose 5 bps to 2.28%.

Most global sovereign yields moved higher as the renewed oil shock revived inflation concerns and prompted markets to scale back expectations for monetary policy easing. US Treasuries bear-steepened, with the long end underperforming as investors repriced the Fed’s policy path and demanded greater compensation for inflation uncertainty, fiscal deficits, and heavy government borrowing. European yields also rose. Bunds came under pressure from the oil-driven inflation repricing and expectations for heavier issuance, while gilts faced the additional headwind of UK fiscal uncertainty. In Asia Pacific, concerns over inflation and fiscal risks in Japan weighed on the long end of the curve, with further BOJ rate hikes anticipated. Australian and New Zealand yields followed the broader global sell-off. EM local yields ended mostly higher as rising developed market yields and weaker risk appetite weighed on duration. China was a notable exception, with yields edging lower as subdued domestic demand sustained expectations for further policy support.

US investment-grade corporate bonds generated negative total returns and underperformed duration-equivalent Treasuries, with financials, industrials, and utilities posting negative excess returns. High-yield bonds also generated negative total returns. Performance across quality tiers was mixed; B rated bonds posted the strongest returns, followed by BB and CCC rated bonds. At the sector level, paper, pharmaceuticals, and property and casualty insurance performed best, while wirelines, transportation, and cable and satellite lagged. Global credit bonds underperformed duration-equivalent government bonds as spreads widened, with financials, industrials, and utilities also detracting on an excess-return basis. US dollar- and sterling-denominated corporate bonds produced negative excess returns, whereas euro-denominated corporates generated positive excess returns. Within EM, local-currency debt outperformed external debt. Wider spreads and higher US Treasury yields weighed on external debt, while EM currency appreciation supported local-market returns, partly offset by adverse local-rate moves.

Currencies

The US dollar ended modestly weaker against major peers after a volatile month, as early support from the oil shock, safe-haven demand, and rising Treasury yields faded later in the month after the Fed left interest rates unchanged and delivered less hawkish guidance than markets expected. The euro was supported by resilient economic data and expectations for a restrictive ECB policy stance, while the British pound benefited from favorable carry and still-elevated UK rate expectations. The Japanese yen fell to a multi-decade low on wide rate differentials, fiscal concerns, and higher energy-import costs before rebounding sharply following a coordinated currency intervention by Japan and the US. The Australian and New Zealand dollars also strengthened as a late-month rebound outweighed risk aversion earlier in the month. EM currency performance was mixed. The South Korean won and Colombian peso led gains amid repatriation and semiconductor inflows, tighter policy, attractive carry, and commodity exposure, while the South African rand and several oil-importing Asian currencies weakened.

Commodities

Commodities (+12.6%) rallied in July, with all four sectors contributing positively during the period.

Energy (+22.5%) rose sharply. Gas oil (+41.4%) surged as tight diesel supplies, Russian refinery disruptions, and delayed restarts of Middle Eastern export refineries pushed diesel and other distillate fuel markets higher. The International Energy Agency noted that refined product markets remained exceptionally tight, driving refinery margins and distillate cracks (the margin between distillate fuel prices and crude oil costs) to four-year highs. Heating oil (+30.5%) also benefited from constrained distillate supplies along with firm transportation and industrial fuel demand. Crude oil (+22.2%) advanced on persistent geopolitical risks surrounding Middle Eastern energy infrastructure and shipping routes, with renewed tensions offsetting the partial recovery of flows through the Strait of Hormuz. Gasoline (+14.5%) rose as robust summer travel demand and low inventories supported prices. In contrast, natural gas (-14.4%) declined as the market remained focused on abundant US supply and continued storage builds. Although hot summer weather supported demand, expectations for healthy inventory levels and resilient production weighed on prices.

Industrial metals (+3.6%) ended higher, led by nickel (+6.0%), as tightening Indonesian mining regulations and higher raw material costs raised concerns over near-term ore availability. Aluminum (+3.7%) advanced on declining inventories and stronger downstream demand from construction, infrastructure, and manufacturing markets. Copper (+3.6%) gained as mine supply disruptions and lower inventories tightened market conditions, while demand from electrification and infrastructure projects remained supportive. Zinc (+3.0%) benefited from constrained mine supply, low inventories, and improving demand expectations, particularly in China. Lead (-0.3%) was the lone detractor as sharply higher London Metal Exchange inventories signaled improved metal availability and eased supply concerns.

Precious metals (+0.2%) increased modestly. Gold (+0.6%) remained supported by geopolitical uncertainty, including conflicts in Eastern Europe and the Middle East that sustained some safe-haven demand. However, expectations that major central banks would maintain restrictive policy settings limited investor enthusiasm and capped gains. Silver (-3.3%) underperformed due to weaker industrial demand forecasts and its greater cyclical sensitivity.

Agriculture & livestock (+2.5%) rose. Coffee (+12.4%) surged as weather-related production concerns in Brazil tightened global supply expectations. Low inventories and limited availability of high-quality beans further supported prices. Wheat (+10.5%) was bolstered by weather-related concerns and geopolitical tensions in the Black Sea region, which increased uncertainty surrounding grain exports. Continued disruptions and risks to regional transportation infrastructure contributed to worries about export flows, supporting prices. Cotton (+6.8%) gained, with strong export demand and weather-related uncertainty in key growing regions lifting prices. Markets remained focused on US crop conditions and production prospects, while steady international demand provided additional support. Sugar (-0.8%) fell on ample global supplies, while solid inventory levels continued to weigh on prices. Live cattle (-4.3%) and feeder cattle (-4.5%) weakened on improving supply expectations and profit-taking following a period of strong performance.