Executive Summary 

July reversed the core assumptions that drove the April–May advance. The tentative U.S.–Iran ceasefire that markets had begun pricing in early in the month broke down, the U.S. resumed strikes on Iranian targets, and Brent crude gained more than 20% for the month as renewed fighting threatened Middle Eastern energy supplies. That energy shock, combined with a hawkish Federal Reserve, pushed long-end Treasury yields sharply higher: the 30-year bond reached its highest level in 19 years and the 10-year returned to its highest since January 2025. 

The result was a rotation month rather than a directional one. For July, the S&P 500 slipped about 0.1% and the Nasdaq declined 3.2%, while the Dow edged up 0.3% to record its fourth straight monthly gain. Leadership flipped out of the AI mega-caps that powered May and into defensives and rate beneficiaries. A late-month wave of strong hyperscaler results — Amazon jumped more than 15% on strong cloud growth, with Alphabet, Microsoft and Meta also higher — lifted technology into month-end but did not erase the Nasdaq’s monthly loss. Apple was the standout casualty, falling around 7% after chip shortages raised costs and cut June-quarter production. The month closed with the Fed on hold but openly leaning toward a September hike, three officials dissenting for an immediate increase, and inflation still well above target. 

Equity Markets Performance 

U.S. equities were mixed and internally divided. The S&P 500 finished roughly flat near 7,474, held up by its technology weighting even as the average stock struggled. The Dow’s advance to a fourth consecutive monthly gain reflected its tilt toward industrials, financials and defensives, which outperformed as capital left growth. The Nasdaq’s 3.2% decline was the month’s clearest signal: the AI-infrastructure complex sold off mid-month on the back-up in long-term rates before recovering late. 

Small caps lagged again. The Russell 2000 ended the month modestly lower near 2,930, pressured by the sharp rise in long-end yields, to which the index is highly sensitive. 

International leadership diverged from the U.S. Indian benchmarks outperformed most Asian peers as well as the S&P 500 and Nasdaq for the month, with the Nifty gaining 2.2% and the Sensex 2.1%. Chinese, Japanese, Korean and Taiwanese markets were extremely volatile as the global AI trade repriced, with semiconductors at the center of daily swings.  

Sector Performance 

July’s sector map was the inverse of May’s. Defensives and rate-sensitive value led; the AI-adjacent growth complex lagged until the final sessions. 

• Consumer Staples / Healthcare: The month’s leaders. Capital rotated toward defensives as long-end yields rose and the AI trade wobbled, with staples and healthcare among the strongest groups. 

• Financials: Modestly positive, supported by higher yields and a steeper curve. Part of the Dow’s relative strength came from this group. 

• Energy (XLE): A relative winner as Brent climbed roughly 20% on the war’s re-escalation. The gain was capped at the stock level by refining constraints — ExxonMobil fell as limited refinery capacity prevented it from fully benefiting from higher oil prices. 

• Information Technology (XLK): The month’s laggard. Semiconductors and AI-infrastructure names sold off mid-month as the 10- and 30-year yields spiked, then rebounded late on strong hyperscaler earnings and reaffirmed capex. Mega-cap AI and data-center capital expenditure for the “Big Four” is projected to reach roughly $630 billion in 2026, a 62% year-over-year increase, which underpinned the late-month recovery in the group. 

• Communication Services (XLC): Positive, carried by Alphabet’s and Meta’s results and continued AI-monetization momentum. 

Underneath the rotation, fundamentals stayed firm: FactSet estimated Q2 2026 S&P 500 earnings growth around 22% on revenue growth of 12%, with energy and technology leading earnings growth. 

Fixed Income 

The Treasury market was the month’s main event. Yields backed up across the curve, driven by the oil-led inflation impulse and a Fed unwilling to signal cuts. At month-end the curve stood at roughly 4.29% at the 2-year, 4.46% at the 5-year, 4.74% at the 10-year, and 5.28% at the 30-year. The 30-year rose to its highest level since July 2007. The curve bear-steepened, with the long end repricing faster than the front end.  

The Federal Reserve held rates as expected but hardened its tone. At Kevin Warsh’s second meeting as chair, the FOMC left the target range at 3.50%–3.75% and hinted at a possible hike at its September meeting. Three officials dissented in favor of a quarter-point increase — Beth Hammack of Cleveland, Neel Kashkari of Minneapolis, and Lorie Logan of Dallas; it was the first time since 2016 that three policymakers pushed the same way. The statement again omitted forward guidance, and Warsh reiterated a commitment to price stability and a willingness to act.  

Inflation eased on energy but stayed sticky at the core. June CPI fell 0.4% on the month, bringing the annual rate to 3.5%, below the 3.8% expected. June headline PCE fell 0.1% on the month and eased to 3.7% year-over-year from 4.1% in May, while core PCE rose 0.1% and held at 3.3% — both well above the 2% target. By month-end, markets had moved to price roughly a two-thirds probability of a 25-basis-point hike at the September meeting.  

Commodities 

Metals 

Gold turned higher after a difficult stretch. Spot gold finished around $4,060 and was on track for its first monthly gain since February, up about 1.7% for July, as investors pared rate-hike bets following the FOMC meeting. The proximate driver was the dollar: the dollar index fell about 2.4% the day after the Fed decision, its biggest one-day drop since January 2023, before recovering back above 100. Structural support remained intact, with continued official-sector buying — the People’s Bank of China added to reserves for a 20th consecutive month. Gold remains well below its January high near $5,597.  

Silver lagged gold. Spot silver ended near $58.25, with the gold-silver ratio widening to about 69.8, reflecting its higher beta and the pressure on industrial demand expectations. 

Energy 

Oil was the defining move of the month, and it went the opposite way to May. Brent opened July near pre-war levels around $71 as a brief truce and diplomatic progress lowered the risk premium. Prices then reversed sharply after the U.S. struck Iran on July 8, reviving supply-disruption fears, and the conflict widened through the month: the pause in fighting collapsed, the Houthis became more involved, Saudi forces joined operations against Iran-backed groups in Iraq, and separate strikes hit Russian and Kazakh supply routes. Saudi Arabia convened more than 40 countries to discuss a naval coalition to protect shipping through the Strait of Hormuz and the Red Sea. Brent closed the month near $87–88, up roughly 20%, with WTI settling in the low-$80s. A tentative pause in U.S. airstrikes right at month-end took some pressure off prices and gave gold room to rally.  

Cryptocurrency 

Bitcoin stabilized after a severe June. Having fallen roughly 19% in June, it recovered off its lows before fading again late in the month, ending near $62,900 with a market capitalization around $1.26 trillion after a soft final session. Institutional flows told the story of caution: Bitcoin spot ETFs pulled in only about $205 million in net inflows in July — the lowest monthly total on record — versus $2.43 billion of outflows in May and $4.52 billion in June. Ether outperformed, with Ethereum ETFs recording roughly $365 million of inflows and four consecutive weeks of positive flows. The late-month risk-off in rates and the dollar, plus a security incident, kept sentiment fragile. 

International Markets 

• India (Nifty 50 / Sensex): The clear outperformer and a full reversal of May’s selloff. The Nifty closed near 24,384 and the Sensex near 78,095, both up around 2%, in a second straight monthly gain. The rally was led by a sharp comeback in IT services: the Nifty IT index gained 16.8%, its best month since July 2020, with the global AI-trade unwind pushing foreign investors back into Indian IT — HCL Technologies rose 25.7% and TCS 16.4%.  

• China (CSI 300): Volatile and roughly flat, ending near 4,588. A mid-month selloff (the CSI 300 fell 2.83% on July 27 on AI-valuation and oil concerns) gave way to a late-month rebound in semiconductors on state-backed buying and reaffirmed U.S. hyperscaler capex. China’s manufacturing PMI slipped into contraction for the first time since February, while the July Politburo reiterated plans to deepen capital-market reforms.  

• Japan (Nikkei 225): Wild swings around the AI trade, ending near 64,362. The index fell 3.95% on July 28 on the tech selloff before rebounding about 4% on July 31 as semiconductors tracked a strong overnight Wall Street rally. The Bank of Japan held its policy rate at 1% in an 8-1 vote.  

• Korea / Taiwan: The epicenter of the AI repricing. The Kospi fell 10.84% on July 28, with Samsung and SK Hynix down 13.4% and 14.7%, then rebounded sharply; Taiwan’s Taiex rallied 8% on July 30 on the semiconductor recovery.  

• Europe (Stoxx 600): Resilient and near record territory. The Stoxx 600 hit a new 52-week high, with utilities and defensives leading as investors sought protection. Major bourses closed the month firm.  

Outlook: August–September 2026 

Three variables carry into the new quarter. 

First, the Iran conflict and oil. The month-end pause in U.S. strikes is the swing factor. A durable de-escalation and a stable reopening of Hormuz would let the energy-led disinflation resume, improve the PCE path, and reduce September hike risk — a setup that would favor duration, real estate and small caps while pressuring energy. A return to active conflict would re-run July’s playbook and keep the long end under pressure.