Monthly Review and Outlook July 2026

Global equities posted modest gains during July, although performance varied significantly across sectors and regions. Investors continued to reassess the sustainability of AI-related growth, leading to a broadening of market leadership beyond technology stocks.

• United States: US equities were little changed overall. Information technology stocks weakened as investors questioned the scale of AI-related investment and considered increasing competitive pressures. However, gains in financials, healthcare and energy companies helped offset these falls.
• Europe: Eurozone equities declined slightly during the month. Technology stocks were among the weakest performers, while investors continued to assess economic data showing modest growth alongside inflation remaining above the European Central Bank's target. GDP growth in the second quarter was stronger than expected at 0.4%.
• United Kingdom: UK equities outperformed many other major markets. Energy companies benefited from rising oil prices, while the financials sector also delivered strong returns. Investor sentiment was supported by renewed commitments to fiscal discipline from the government.
• Japan: Japanese equities produced mixed results. The broader TOPIX index moved higher, while the technology-focused Nikkei 225 fell. Market leadership shifted away from AI- and semiconductor-related companies towards more value-oriented and cyclical sectors. Investors also continued to monitor the impact of a weak yen on inflation and interest rates.
• Emerging Markets: Emerging market equities underperformed developed markets. Markets with significant exposure to AI and semiconductor companies, particularly Taiwan and South Korea, came under pressure as enthusiasm surrounding the sector faded. Concerns over future AI spending, increasing competition from China and elevated market valuations contributed to higher volatility during the month.

Fixed income markets were weaker during July as government bond yields rose across many major markets.

Higher energy prices fuelled concerns that inflation may remain elevated for longer than previously expected. As a result, investors became less confident that central banks would be able to reduce interest rates in the near term.

In the United States, the Federal Reserve left interest rates unchanged at 3.50% to 3.75%. However, longer-dated government bonds underperformed as investors questioned how quickly policymakers would respond if inflation remained above target.

The European Central Bank also left rates unchanged but provided little indication that future policy would become more supportive. Government bond yields across Europe climbed to multi-year highs as markets reassessed the outlook for interest rates.

In the UK, government bonds initially came under pressure before stabilising later in the month following renewed commitments to fiscal discipline. Meanwhile, investors in Japan remained focused on the inflationary implications of continued yen weakness.

Corporate bond performance was mixed. In the US, investment grade bonds underperformed government bonds of similar maturity as credit spreads widened slightly, particularly among technology issuers. European investment grade bonds fared better, outperforming government bonds as spreads tightened modestly.

Commodities delivered positive returns during July, led by a sharp rise in energy prices.

Oil prices increased following a re-escalation of conflict in the Middle East, renewing concerns about potential supply disruption. Higher energy prices also influenced bond markets by contributing to inflation concerns.

Broader commodity markets were supported by firmer raw material prices, although performance varied across sectors.

Looking ahead, investors will continue to monitor inflation trends, central bank policy decisions and the outlook for global economic growth.

July highlighted a notable shift in market leadership, with investors becoming more selective towards sectors that have benefited most from the rise of artificial intelligence. While long-term opportunities linked to AI remain significant, recent market movements demonstrate that periods of consolidation and changing leadership should be expected.

Higher energy prices and persistent inflationary pressures may continue to influence interest rate expectations and create bouts of market volatility. At the same time, economic growth has generally remained resilient across major regions, providing support for company earnings.

As ever, maintaining a diversified approach across asset classes and regions remains important. While short-term market movements can create uncertainty, a long-term perspective continues to provide a solid foundation for investing.

Forecasts of future performance are not a reliable guide to actual results, neither is past performance a reliable indicator of future results. The value of investments and the income from them can fall as well as rise and are not guaranteed, and the investor might not get back their initial investment.

Any views expressed are our in‑house views as at end‑July 2026. Investment markets and conditions can change rapidly, and the views expressed should not be taken as statements of fact nor relied upon when making investment decisions. This content may not be used, copied, quoted, circulated or otherwise disclosed (in whole or in part) without our prior written consent.

Schroders Investment Management (SIM) provides investment management and advice services for Lloyds Wealth funds and portfolios respectively.

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