Monthly Market Update – July 2026

Equities: A rare down July, but with encouraging undercurrents

The S&P 500 finished July down only about 0.1%—a razor-thin decline, but enough to end an eleven-year streak of positive Julys dating back to 2015, marking the index’s first negative July since 2014. The damage was concentrated almost entirely in semiconductors, where the group of chipmakers closed out the month little changed but still posted their worst monthly performance since 2008, as investors reassessed the pace of AI-related capital spending.

Beneath that headline figure, the month’s story was more constructive. Leadership shifted away from the usual AI hardware names toward technology consulting, enterprise software, digital payments and insurance services, with several large-cap companies posting standout earnings-driven gains even as the broader index struggled. This broadening of leadership away from a narrow set of winners is generally viewed as a healthy sign for market participation.

The month also ended on a strong note. On the final trading day of July, the S&P 500 added 0.7% and the Dow gained 0.53%, with the Dow posting its fourth consecutive winning month even as investors looked past a fresh climb in bond yields. This pattern—volatility around AI valuations and policy uncertainty, followed by a resilient finish —has become a familiar rhythm in 2026, and July was no exception.

The Federal Reserve: A historic split, even as policy stayed on hold

The most notable policy development of the month came on July 29, when the Federal Open Market Committee (FMOC) voted 9 to 3 to hold its benchmark rate steady at 3.5% to 3.75% for a fifth consecutive meeting, with the ongoing conflict in the Middle East clouding the outlook for inflation. Three regional Federal Reserve presidents—Cleveland’s Beth Hammack, Minneapolis’s Neel Kashkari, and Dallas’ Lorie Logan—dissented in favor of a quarter-point hike instead, marking the first time since Sept. 2016 that three policymakers have dissented in the same direction on rates.

The split reflects a genuine divide within the Fed about how to weigh persistent inflation against a cooling labor market, a tension that new Fed Chair Kevin Warsh has openly embraced. At his post-meeting press conference, Warsh told reporters, “I asked for a good family fight, and I got one.” Markets took notice: Long-term Treasury yields moved higher in the days around the decision, with the 30-year Treasury yield spiking to its highest level since 2007, touching roughly 5.25% by month-end as investors weighed questions about the Fed’s resolve on inflation.

Labor market cooling, inflation easing and a familiar geopolitical risk returns

Economic data released during July told two different stories. On the labor side, the June jobs report, released July 2, showed nonfarm payrolls rising by just 57,000, well below the 115,000 economists had forecast and slower than May’s downwardly revised 129,000 gain. The unemployment rate ticked down to 4.2%, though that improvement was driven largely by a decline in labor force participation to 61.5%, its lowest level since March 2021, rather than by stronger hiring.

On the inflation side, the news was more encouraging. June CPI data, released July 14, showed headline inflation easing to 3.5% year-over-year, down from May’s three-year high of 4.2%, while core inflation cooled to 2.6% year-over-year from 2.9% in May. That improving trend, however, ran into a complication late in the month. After a mid-June memo of understanding had allowed oil prices to retreat toward pre-conflict levels, fighting between the United States and Iran around the Strait of Hormuz resumed in July, with Iran attacking tankers transiting the waterway and shipping traffic through the strait declining sharply. By July 31, West Texas Intermediate crude had climbed back to roughly $84.67 per barrel and Brent to about $90.12, reintroducing the kind of energy-driven inflation risk that has periodically resurfaced throughout 2026.

Putting July in context

Taken together, July 2026 was a month of genuine tension between improving and worsening signals: a down month for the S&P 500 that still showed healthy participation beneath the surface; a Fed that held policy steady but revealed real disagreement about the path ahead; and an inflation picture that brightened on the data front even as a resurgent conflict in the Middle East reminded investors how quickly energy markets can shift the calculus. None of these developments represents a decisive turn in either direction—rather, they reflect the kind of crosscurrents that have characterized much of this year’s economic and market environment.

We will continue to monitor the Fed’s policy path, the trajectory of the Iran conflict and its effect on energy prices, and incoming labor and inflation data as we move into the fall. As always, thank you for your continued trust.