MarketWatch for July 2026

Global equities, as measured by the MSCI World index, gained slightly in July. The month was marked by a move away from AI related stocks. Bonds generally registered negative returns amid inflation worries. Renewed conflict in the Middle East led to higher oil prices. 

US equities were marginally weaker overall. The information technology sector fell amid concerns over the scale of AI investments and potential competitive threats. However, this was largely offset by gains seen in other sectors including financials, healthcare and energy.

Eurozone shares fell slightly (as measured by MSCI EMU). Again, the information technology sector saw a decline. Data showed eurozone GDP rose by 0.4% in Q2 while inflation remained above target in July.

UK shares rose in July, outperforming other regions. Top gaining sectors included energy while the large financials sector also performed well. 

Within Japanese equities, the TOPIX Total Return index edged higher while the tech-heavy Nikkei 225 fell. Market leadership shifted away from AI- and semiconductor-related stocks toward value and cyclical sectors. 

Emerging market (EM) equities posted negative returns in July, underperforming the MSCI World Index. The AI-led rally that has driven EM performance throughout much of 2026 showed further signs of slowing down as Korea and Taiwan led EM lower. 

Growing concerns over the sustainability of hyperscaler (companies involved in large-scale computing provision) capex spending, rising competition from China and elevated Korean market leverage fuelled heightened volatility in July. This came against the backdrop of a weaker US dollar and firmer commodity prices. 

In fixed income, bond yields rose (moving opposite to prices) as they continued to track energy prices closely. At the same time, investors questioned whether AI-related capital expenditure and valuations had moved too far, creating divergence within credit issuers.  

As expected, the US Federal Open Market Committee left interest rates unchanged at 3.50%–3.75%. The yield curve steepened sharply (marking an underperformance of long-end bonds) as the market questioned Chair Warsh’s firmness in responding to above-target inflation. 

The European Central Bank kept its deposit rate at 2.25% but did little to push back against market pricing for further rate rises. Sovereign yields climbed to multi-year highs. In the UK, gilts underperformed initially before stabilising following renewed commitments to fiscal discipline by the new government. In Japan, investors focused on the inflation and interest rate implications of a very weak yen.

Commodities gained overall in July with energy sharply higher amid a re-escalation of the conflict in the Middle East.

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