Global Market

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July 2026 saw global markets remain broadly resilient despite renewed geopolitical tensions and a sharp rotation away from growth and technology stocks. Early in the month, renewed tensions in the Middle East pushed energy prices higher and raised concerns over the inflation outlook, while attention later shifted towards second-quarter earnings and whether continued investment in artificial intelligence would generate sufficient returns.

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Global equities were broadly flat over the month, but performance varied significantly across sectors and regions. The S&P 500 was broadly unchanged despite a strong second-quarter earnings season, with earnings growth tracking around 36% year-on-year and 85% of companies exceeding analysts’ expectations. However, concerns over elevated valuations, the scale of AI-related capital expenditure, semiconductor export controls and China’s technological progress weighed on technology stocks, with the MSCI World Semiconductors Index falling 13.2%. Energy and financials instead gained 8.8% and 6.5%, respectively, resulting in value stocks outperforming growth stocks by more than six percentage points. The UK FTSE All-Share rose 3.7%, while European equities were broadly flat. Japanese equities diverged, with the TOPIX broadly unchanged but the technology-heavy Nikkei 225 falling almost 8%. Emerging markets underperformed, with the MSCI Emerging Markets Index falling 3.0%, as Taiwan and South Korea were particularly affected by weakness in semiconductor stocks, while Chinese equities remained comparatively resilient.

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Commodity markets remained volatile during July, driven primarily by developments in the Middle East. Brent crude initially rallied sharply as renewed US-Iran tensions and disruptions to energy transportation heightened concerns over global supply, briefly approaching $100 per barrel. Prices subsequently fell back as expectations of de-escalation increased, before recovering towards month-end as geopolitical risks remained unresolved. Higher energy prices also reinforced concerns over the global inflation outlook. Precious metals remained supported by geopolitical uncertainty, while industrial metals were comparatively resilient as continued investment in AI infrastructure, electrification and energy-related infrastructure supported demand.

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Global fixed income markets came under pressure as government bond yields moved higher. The Bloomberg Global Aggregate Bond Index fell by around 0.5% as higher energy prices and resilient economic activity led investors to reassess the outlook for inflation and interest rates. The Federal Reserve maintained the federal funds target range at 3.50%–3.75% in a 9–3 vote, with three members preferring a 25bp increase. The Fed also adopted a less explicit approach to forward guidance, placing greater emphasis on incoming data and market conditions rather than signalling a predetermined policy path. The European Central Bank kept its deposit rate unchanged at 2.25%, while the Bank of Japan maintained its policy rate at 1.0%, with both central banks emphasising a data-dependent approach amid continued uncertainty over inflation and energy prices.

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As of 31 July 2026:

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UK 10 Year Gilt Yield 5.061%
US 10 Year Treasury Yield 4.740%
Germany 10 Year Bund Yield 3.229%

 

UK Market

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UK equities outperformed most developed markets in July, with the FTSE All-Share rising 3.7%. The UK’s relatively low exposure to technology helped shield the market from the global sell-off in semiconductor and AI-related stocks, while strong gains in energy and financials provided additional support. The performance highlighted the benefit of the UK market’s more value-oriented sector composition during a month in which value stocks significantly outperformed growth.

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The domestic macroeconomic backdrop remained mixed. Annual CPI inflation fell to 2.6% in June, below expectations and closer to the Bank of England’s 2% target. However, the Bank expected inflation to rise later in the year as higher energy prices feed through to household utility bills, motor fuel costs and business input prices. At its July meeting, the Bank of England voted by a 6–3 majority to maintain Bank Rate at 3.75%, with three members preferring a 25bp reduction. The Bank emphasised that monetary policy cannot directly influence global energy prices, but must prevent a temporary energy shock from becoming persistent domestic inflation. At the same time, higher borrowing costs, weaker domestic demand and a loosening labour market should limit second-round inflationary effects.

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Gilts came under pressure during the month as higher global energy prices and renewed concerns over inflation pushed yields higher. The Bank of England’s decision to hold rates at 3.75% reinforced a cautious approach to further monetary easing, while investors remained sensitive to developments in energy prices and their potential impact on inflation. As a result, the 10-year gilt yield remained elevated, ending July at around 5.1%.

 

Ark Insight

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July saw global markets remain broadly resilient despite renewed geopolitical tensions and a notable rotation away from growth and technology stocks. Strong second-quarter corporate earnings continued to support equities, but investors became increasingly selective as concerns over elevated valuations and the scale of AI-related investment weighed on semiconductor and other technology companies. Meanwhile, energy and financial stocks performed strongly, highlighting the importance of sector diversification as market leadership broadened beyond the technology sector.

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Looking ahead, investors will continue to monitor developments in the Middle East and their impact on energy prices and inflation. Although oil prices eased from their early-month highs as immediate geopolitical concerns moderated, the risk of renewed supply disruptions remains an important source of uncertainty. At the same time, major central banks remain cautious, with the Federal Reserve, European Central Bank and Bank of Japan all maintaining their policy rates in July. The combination of resilient economic activity, higher energy prices and persistent inflation risks suggests that interest rates may remain elevated for longer, while the Fed’s less explicit forward guidance places greater emphasis on incoming economic data.

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In this environment, maintaining a diversified portfolio across regions, sectors and asset classes remains important. While the AI investment cycle continues to offer significant long-term growth opportunities, the sharp rotation towards value stocks during July demonstrates the importance of avoiding excessive concentration in a single investment theme. Continued geopolitical uncertainty, divergent sector performance and a potentially prolonged period of elevated interest rates reinforce the value of diversification, disciplined portfolio construction and active risk management.

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As always, your advisers would be happy to assist with any questions you may have.