Global markets extended their advance during July, with several indices reaching record highs as tensions eased in the Middle East, although the situation remains unpredictable. Resilient corporate earnings and sustained confidence in the long-term potential of AI offset concerns surrounding UK political transition, and uncertainty over the pace of future interest rate cuts provided further support. Investor sentiment remained broadly positive, despite a period of volatility in technology shares mid-month.
The US continues as the principal force behind global market performance, underpinned by a strong second-quarter earnings season in which the majority of S&P 500 companies exceeded investor expectations, marking it as one of the strongest in recent years. US tech giants continued to announce increased planned spending, supporting the ongoing build-out of AI infrastructure and data centres, reinforcing investor confidence that the technology-led earnings recovery remains well supported across a broadening range of sectors. The Federal Reserve continues to balance a resilient labour market against a still-elevated inflation backdrop, maintaining a cautious stance on further policy easing.
AI remained the dominant structural theme influencing the direction of markets. A sharp sell-off in technology and semiconductor shares mid-month, triggered by renewed Middle East tensions and a rise in oil prices, proved short-lived. Markets recovered into the month end as strong earnings from major technology companies reaffirmed the durability of AI-related spending. Demand for semiconductors, power infrastructure and industrial metals continued to underpin the broader AI supply chain, with South Korean and Taiwanese companies in particular benefitting from ongoing investment in electrical equipment and memory chips.
While the US and Asian market leadership remains highly influential, global equity market leadership broadened during July to UK and Europe. These markets performed well, supported by resilient corporate earnings, easing geopolitical risk and improving investor sentiment, despite a modest pullback in the final days of the month as investors banked profits near record levels. Japanese equities also made further progress, aided by a weaker yen, continued corporate governance reform and strength among exporters.
Emerging market equities remained a standout area of performance, led once again by Asia. Chinese equities lagged, weighed down by continued weakness in domestic demand and ongoing trade-related uncertainty, while broader emerging market indices have grown impressively over the past year.
The UK market delivered a further period of mixed performance. Large-cap companies were supported by heightened takeover activity and strength in the technology, defence and financial sectors, which helped push the FTSE 100 to fresh record highs during the month, before a degree of profit-taking emerged in the final days of July. UK small and mid-cap equities continued to lag, weighed down by persistent domestic cost pressures and a period of political transition following Andy Burnham’s appointment as prime minister on 20 July. Nevertheless, attractive dividend yields and relatively compelling valuations continue to provide support for long-term investors.
Fixed income markets were relatively stable during July. The Bank of England held the base rate at 3.75% for a fifth consecutive meeting, citing tighter financial conditions and the ongoing impact of the Middle East conflict on household and business borrowing costs. UK inflation continued to ease, with the Consumer Prices Index falling to 2.6% in the year to June, down from 2.8% in May, reducing near-term expectations for further policy tightening. Credit markets remained resilient, underpinned by healthy company fundamentals.
Commodity markets were mixed during July. Oil prices remained well below the highs reached earlier in the year, as expectations of a durable Middle East ceasefire and easing supply concerns continued to weigh on prices, helping to moderate broader inflationary pressures. Industrial metals remained well supported by structural demand linked to electrification, AI infrastructure and data centre construction, while gold continued to consolidate following its earlier strength.
Markets have continued to demonstrate resilience through the summer, with the ongoing geopolitical tensions largely overlooked, robust corporate earnings and sustained investment in AI infrastructure helping to support investor confidence. The transition to a new UK government adds a further dimension of uncertainty domestically as investors assess the policy direction of the incoming administration. Maintaining diversified portfolios across regions and asset classes remains important as investors continue to balance long term growth opportunities against an evolving macroeconomic backdrop.
*Base Rate as at 30 July 2026; inflation data to June 2026
Source of data: FE Analytics, www.bankofengland.co.uk, www.ons.gov.uk
This commentary in no way constitutes a solicitation of investment advice and should not be relied upon in making investment decisions. Past performance is not a reliable indicator of future results. The value of your investments can fall as well as rise and are not guaranteed.
