Market review – July 2026

A key theme in equity markets in July was the sharp drop in some technology names as investors re-assessed the scale of investment some companies are committing to artificial intelligence (AI), as well as what China’s increasing AI capabilities could mean for the other big players.

In the US, the S&P 500 Index (which tracks the 500 largest listed companies in the US) ended the month essentially flat, whereas the Nasdaq (which tracks US technology companies) fell by just over 3%. The share prices of some mega-cap technology names including Alphabet, Meta and Tesla came under pressure, either because of disappointing earnings or on worries about their high levels of AI-related investment. In contrast, Microsoft impressed, as Azure (its cloud computing platform) reported strong growth.

Europe posted a small gain, partly supported by better-than-expected economic growth in the second quarter. The UK was a notable out-performer, with the FTSE 100 (which tracks the 100 largest companies listed on the London Stock Exchange) reaching an all-time high, helped by its lower direct exposure to the AI build-out.

In Japan, the Nikkei 225 (an index of 225 leading Japanese companies) struggled, hurt by the correction in AI-related names and, in addition, by a strengthening yen following intervention at the end of the month. The Topix Index (a broader measure of the Japanese stockmarket) ended the month essentially flat. Elsewhere in Asia, Korean and Taiwanese stockmarkets were dragged down by the sharp reversal in semiconductor stocks. China’s Shanghai Composite (which tracks companies listed on the Shanghai Stock Exchange) also fell sharply, as economic growth continued to disappoint.

Fixed income (bond) markets were dominated by the interaction between central bank policy (the major central banks kept interest rates unchanged in July) and a re-kindling of oil-driven inflation fears as attacks in the US-Iran conflict resumed. Long-dated yields in some bond markets rose to multi-year highs. In the corporate bond market, higher yields on debt issued by AI-related companies highlighted waning investor enthusiasm for some AI infrastructure financing.

The US dollar was weak against other major currencies in the month, which was partly due to the Federal Reserve’s decision to hold interest rates. On the other hand, the Japanese yen strengthened, supported by coordinated intervention by the Bank of Japan and the US Treasury.

Oil was volatile in the month. A re-escalation of tension between the US and Iran, as both countries resumed strikes, saw key oil benchmarks climb by over 20% in July. The copper price rose, while the gold price nudged higher benefiting from its safe-haven status during periods of uncertainty.

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