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After an exceptional 2nd quarter July provided somewhat of a reality check for investors. The fragile ceasefire in the Middle East crumbled, with Iran launching attacks on commercial vessels in the Strait of Hormuz early in the month. President Trump declared the truce over and the US resumed strikes on Iranian targets. Disruption to Hormuz shipping pushed the price of oil back over $90 a barrel and caused fuel shortages in parts of Asia. It feels like $100 is where Trump blinks with signs of another ceasefire being agreed by the end of July. Tariffs, (remember those) were also back on the agenda as President Trump announced rates of 10%-12.5% on 60 countries including the UK.

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In his first meeting as Federal Reserve Chair, Kevin Warsh unsettled investors with a hawkish tone, saying the Fed would “not waver” in tackling price pressures driven by the Middle East conflict. The Fed left rates unchanged at its July meeting amid economic uncertainty, although three of the twelve members voted for an increase. The Bank of England followed a similar approach and held rates but warned an escalation of the conflict could result in a rate rise, whilst Central banks in Japan and Europe also took a wait and see approach.

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At home newswires were dominated by Andy Burnham’s anointment as Prime Minister during the month, but the change barely registered with investment markets, perhaps because the novelty of new UK leadership has faded after seven changes in ten years. Following April’s contraction in the UK economy, the new PM will welcome May’s modest 0.1% growth and CPI inflation falling back to 2.6% in June, although this was before the recent spike in fuel prices.

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Markets have been much more preoccupied with trying to assess the development of AI and whether the massive capital expenditure can turn a profit. Volatility ramped up in July with a sharp selloff in semiconductor stocks, perhaps unsurprising given their meteoric rise in the past quarter. The South Korean market was at the forefront of the sell-off with chipmakers SK Hynix and Samsung losing around half their value in the panic selling, before recovering some of their losses at the end of the month. But at the same time there was renewed strength in some of the US technology mega-caps, with Amazon and Alphabet rallying on good results and Microsoft calming markets at the end of the month after a big increase in quarterly profits – Apple also delivered strong results.

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Those who decided to back Space X’s flotation have certainly had a reminder of the volatility associated with technology stocks. After listing at $135 at the end of June the shares rocketed to $225 before retreating to $108, illustrating how quickly sentiment can shift in this part of the market.

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Market Watch

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Although the MSCI World Index was broadly flat in July, posting a modest gain of 0.2% this masked significant volatility and a rotation in investment style and market leadership over the month. UK dividend stocks provided a good diversifier from the AI trade and the FTSE All Share index returned 3.7% and was one of the best performing of the major global markets. Domestically focused smaller companies also had a good month with the Numis Smaller Companies index up 5.7%.

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Given the euphoria over AI not many predicted the UK stockmarket would have outperformed the NASDAQ year to date, but it has, as the tech heavy US index fell back 4.1% last month. The major US, Japanese, and European benchmarks were broadly flat over the month, but Asian and Emerging markets benchmarks were hit by their high weighting in semiconductor chip stocks.  The MSCI Asia ex Japan index fell 4.6% and MSCI Emerging Markets index 4.3% lower, despite Chinese and Hong Kong stocks bouncing (the Hang Seng was the best performing major market up by 13% with financials and Chinese tech stocks at the forefront of the rally).

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Looking at the bond markets now and as oil prices spiked again on the back of Iran, so did bond yields. In the US, the ten-year treasury offered 4.47% at the end of June and pays 4.73% now. The ten-year gilt offers 5.05% now compared to 4.76% a month ago. The harbinger of doom, the OBR, predicted public sector debt will hit 300% of GDP by 2075 on the current path – no wonder bond yields are going up. In Japan, the JGB is edging closer to 3% and now pays 2.79% whilst a 10-year German Bund offers 3.2%.

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In the commodity markets oil came off the biggest quarterly fall in six years to rise sharply in July after the resumption of Iranian hostilities. Brent crude started July at $72 a barrel and is now $90.12 after nudging $100 a few times during the month. Gold had a much quieter month, but saw some respite gaining $69 to finish at $4107 an ounce (it’s first monthly gain since February).

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On the currency markets the pound was fairly strong gaining 0.7% against the Euro, 1.5% against the US dollar, but fell 0.4% compared to the Yen which ended July strongly. The Japanese currency had hit a forty year low versus the dollar before staging a rebound. Although according to a report in the FT the US Treasury intervened in the Forex markets to buy Yen. Have we seen peak weak Yen? If the Bank of Japan continues to normalise monetary policy this could prompt a rebound during the remainder of 2026 and into 2027.

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The numbers…

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Monthly performance figures 30/6/26 to 31/7/26 source FE Analytics. N.b. the fund sectors exclude money market funds, markets are in local currency, and investment trusts exclude VCTs.

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Important Information

This document is produced by Fairview Investing Ltd, an independent research consultancy in conjunction with James Scott-Hopkins. The content is for information purposes only and does not constitute financial advice. The commentary or research provided do not constitute a personal recommendation to deal. Any statements, opinions, forecasts, and figures are made by Fairview Investing (unless otherwise stated). They are considered to be reliable at the time of writing but may be subject to change.

Fairview Investing accepts no legal responsibility or liability for the content of this material. The contents of the document are not to be re-produced or circulated without the express permission of Fairview Investing Ltd. Fairview are independent investment consultants sitting on the Investment Committee of EXE Capital Management.

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