Monthly Market Commentary

July Market Update: A Flat Market with a Lot Going On Underneath

By Ashley Taylor

If you looked only at the major market indexes, you might think July was a pretty boring month. The S&P 500 finished down just 0.1%, while the Dow eked out a small gain.

But underneath those numbers, quite a lot was happening.

Investors moved money out of some of the technology and growth stocks that have dominated the market for the past couple of years and into energy, financials, materials, and other more economically sensitive areas. The NASDAQ fell 3.2% and the Russell 2000 lost 3.1%, even as the Dow finished slightly higher.

In other words, money wasn’t necessarily leaving the market. It was changing seats.

And the biggest reason for that shift wasn’t corporate earnings or even the economy. It was oil.

Renewed hostilities between the United States and Iran, along with worries about shipping through the Strait of Hormuz, sent oil prices sharply higher. That set off a pretty straightforward chain reaction: higher oil prices pushed inflation expectations higher, higher inflation expectations pushed interest rates up, and higher rates put pressure on growth stocks because more of what investors are paying for today is based on profits those companies are expected to earn years from now.

That’s how you get from the Strait of Hormuz to the NASDAQ in about three weeks.

The economic picture was actually somewhat better than the headlines suggested. Second-quarter GDP slowed to 1.5%, but households and businesses were considerably stronger than that number implies. Real final sales to private domestic purchasers grew at a 3.9% annualized rate. June inflation also cooled significantly, consumer sentiment improved, and corporate earnings remained strong.

There is one catch. Much of June’s improvement in inflation came from falling energy prices. Then energy prices reversed course in July.

So, somewhat remarkably, one commodity helped explain both the good inflation news entering July and many of the market’s worries by the time July ended.

And then, just to make the point that markets can change quickly, oil gave back much of its July increase during the first few days of August as tensions eased, while the S&P 500 and Dow moved to new record highs.

Welcome to investing in 2026.

U.S. Markets: Same Destination, Very Different Routes

Major U.S. stock indexes delivered very different results in July.

Source:  Morningstar

The month really had two distinct halves.

During the first few weeks, mega-cap technology and communication services stocks came under pressure as investors started asking harder questions about the enormous sums being spent on artificial intelligence. The question isn’t whether companies are spending money on AI. They clearly are. The question is when all of that spending starts producing enough additional profit to justify the investment.

Money rotated instead toward energy, utilities, financials, materials, and value-oriented stocks.

Then, during the final week of July, strong earnings from several of the largest technology and e-commerce companies brought buyers back. Technology recovered a good portion of its earlier losses, leaving the S&P 500 almost exactly where it began.

One interesting footnote: the S&P 500 had finished higher every July from 2015 through 2025. So July 2026, with its whopping 0.13% decline, broke an eleven-year winning streak.

Probably a good reminder that seasonal patterns work right up until they don’t.

Small caps also struggled during July, in part because higher interest rates tend to affect smaller companies more than their large-cap counterparts. Smaller businesses generally carry more floating-rate debt and refinance more frequently, so higher borrowing costs can hit them faster and harder.

But context matters here. Even after July’s decline, the Russell 2000 remained up more than 18% for the year, well ahead of the large-cap indexes.

One weak month doesn’t erase that.

The Economy: Better Than the Headline

Second-quarter GDP growth slowed to a 1.5% annualized rate from 2.1% in the first quarter.

At first glance, that’s not particularly exciting.

Dig one layer deeper, though, and the picture gets much more encouraging.

A measure called “real final sales to private domestic purchasers” looks specifically at spending by households and businesses. It strips away some of the noise created by government spending, inventories, and international trade.

Real final sales to private domestic purchasers grew at a 3.9% annualized rate in the second quarter. That’s a big acceleration from 1.7% in the first quarter and considerably stronger than the headline 1.5% GDP growth rate.

In plain English, the private economy was doing considerably better than the GDP headline suggested.

Consumer spending and business investment both contributed to growth. Government spending declined and rising imports pulled down the headline GDP number.

That’s an important distinction. A slowing economy because consumers and businesses are pulling back would concern me much more than a lower GDP number caused largely by government spending and trade.

Inflation: Good News with an Asterisk

June’s inflation report was genuinely encouraging.

The Consumer Price Index fell 0.4% during the month, its largest monthly decline in more than six years. Year-over-year inflation fell to 3.5% from 4.2%, while core inflation, which excludes food and energy, declined to 2.6%.

The catch is what caused much of the improvement.

Energy prices fell 5.7% in June and were the single largest contributor to the decline in inflation.

Then July happened.

Oil prices surged as the conflict with Iran intensified, effectively reversing some of the energy-price relief that had helped June’s inflation report look so good.

That doesn’t make the June report meaningless. Core inflation improved too, which is important. But it does illustrate why the path back toward the Federal Reserve’s 2% inflation target is unlikely to be a straight line.

We should get a clearer picture when July CPI is released on August 12.

Interest Rates: Why Oil Suddenly Became a Tech Story

The bond market was paying attention.

The 10-year Treasury yield moved above 4.7% during July, its highest level since January 2025, while the 30-year Treasury reached levels last seen in 2007.

Expectations also shifted away from rate cuts and toward the possibility that the Federal Reserve might need to tighten further if inflation remains stubborn.

And this is where the different pieces of July start connecting.

Higher oil can mean higher inflation. Higher inflation can mean higher interest rates. And higher interest rates tend to hurt growth stocks more than value stocks because more of what investors are paying for today is based on profits those companies are expected to earn years from now.

Suddenly a disruption in Middle Eastern oil markets becomes relevant to the price you’re willing to pay for a technology company.

That was July in a nutshell.

Consumers: Feeling Better, Still Spending

Consumers felt noticeably better in July.

The University of Michigan Consumer Sentiment Index rose to 55.2 from 49.5 in June, its highest level since February. All five components of the survey improved, including particularly large gains in consumers’ willingness to buy durable goods and their expectations for business conditions.

Inflation expectations also improved. One-year expectations declined from 4.6% to 4.2%.

There is an interesting connection here too. Survey officials specifically pointed to lower gasoline prices as one reason consumers were feeling better, while warning that the improvement might not last if energy prices reversed.

Which, of course, they subsequently did.

Actual spending remained fairly solid. June retail and food-service sales were up 0.2% from May and 6.7% from a year earlier. Excluding automobiles and gasoline, sales increased 0.4%.

Consumers may still tell surveys that they’re worried about the economy, but they continue to spend.

We’ve been watching that disconnect for quite a while.

Housing: Still Stuck

Housing remains one of the clearest places where higher interest rates are creating real pressure.

Pending home sales fell 5.4% in June, their first decline in five months, with contract signings falling in all four regions of the country.

The problem is pretty straightforward: mortgage rates are high and home prices are also high.

Usually one of those things eventually helps correct the other. Higher rates cool demand, which puts pressure on prices. Or falling rates make high prices somewhat easier to afford.

Instead, buyers have been dealing with both at once.

That’s especially difficult for first-time homebuyers, who don’t have existing home equity to help bridge the affordability gap.

Until either mortgage rates or home prices meaningfully improve, housing is likely to remain one of the softer parts of the economy.

International Markets: Europe Has Its Moment

International markets were another interesting part of July’s rotation.

European stocks generally performed well, with Germany’s DAX gaining approximately 4.8% and the UK’s FTSE 100 gaining about 4.5%. France’s CAC 40 posted a smaller gain.

Asian markets moved the other way. Japan’s Nikkei 225 declined roughly 2.7% and China’s Shanghai Composite fell about 1.6%.

What makes Europe’s performance particularly interesting is that Europe is a large net importer of energy. You wouldn’t necessarily expect European stocks to be leading during a month dominated by an oil shock.

And yet they did.

I think that tells us something about how concentrated valuations had become in U.S. and Asian technology stocks. July wasn’t simply an energy story. It was also a valuation story and another reminder that leadership can rotate very quickly.

Oil: The Story of the Month

If there was one chart that explained July, it was probably oil.

West Texas Intermediate crude rose almost 27% during the month as renewed hostilities between the United States and Iran made investors increasingly nervous about shipping through the Strait of Hormuz.

Why does that matter so much?

A significant portion of the world’s seaborne oil passes through the Strait of Hormuz. Markets don’t need an actual supply disruption to react. The possibility that tankers might have trouble moving through one of the world’s most important energy chokepoints can be enough to push prices higher.

There’s also an important difference between two kinds of oil-price increases.

If oil rises because the global economy is booming and businesses need more energy, that’s usually a sign of economic strength.

If oil rises because investors are worried that supply could suddenly disappear, that’s a different story. Consumers pay more at the pump, businesses face higher costs, inflation rises, and central banks have less flexibility to lower interest rates.

July’s increase was much closer to the second kind.

And here’s another reason not to make portfolio decisions based on the latest headline: during the first few days of August, a preliminary agreement to reopen the Strait helped push crude back toward $75 per barrel, giving back much of July’s surge.

The story changed almost as quickly as it arrived.

Earnings: Wait, Earnings Grew 47%?

Second-quarter earnings were very strong.

But the headline number requires a rather large asterisk.

By the end of July, about 61% of S&P 500 companies had reported earnings. Of those, 86% beat analysts’ earnings estimates, considerably better than historical averages.

The headline year-over-year earnings growth rate for the S&P 500 was an eye-popping 47.4%.

Corporate America did have a good quarter.

It did not suddenly become 47% more profitable in any normal sense of the word.

Most of the distortion came from two companies: Alphabet and Amazon.

Both reported enormous gains related primarily to increases in the value of investments they own. Alphabet recorded approximately $98 billion in gains largely related to equity securities, while Amazon reported $53.4 billion of non-operating income largely related to its investment in Anthropic.

Those are legitimate accounting gains, but they aren’t the same thing as selling more advertising, cloud services, or packages.

Remove those two companies and S&P 500 earnings growth falls from 47.4% to about 28.8%.

Still excellent.

In fact, 28.8% earnings growth would represent a second consecutive quarter above 20% and a seventh consecutive quarter of double-digit growth.

Revenue gives us an even cleaner look at what’s happening because you can’t increase revenue simply because an investment you own became more valuable. About 77% of reporting companies beat revenue estimates, and blended revenue growth reached 14.1%, the strongest pace since late 2021.

So my takeaway isn’t that the earnings numbers are misleading and therefore the quarter was weak.

It’s almost the opposite.

The underlying business results were genuinely strong. We just don’t need the artificially inflated 47% headline to make the case.

Bringing It Together

July’s flat S&P 500 return may be the least interesting thing about July.

We had an oil shock, renewed inflation worries, rising interest rates, and a significant rotation underneath the surface of the market. Technology struggled, energy surged, value outperformed growth, and yet the broad market barely moved.

Meanwhile, the economy looks somewhat stronger than the headline GDP number suggests. Consumers and businesses are still spending, sentiment improved, and corporate revenues and earnings remain strong.

There are certainly risks.

Inflation remains above the Federal Reserve’s target. Housing is under real pressure. Interest rates are high, and the war reminded us how quickly an external event can change inflation expectations and market leadership.

But July also gave us a pretty good real-world lesson in why we diversify.

For the past couple of years, owning energy and value stocks sometimes felt like owning the boring parts of the portfolio while technology did all the work.

Then July arrived, and those “boring” holdings did exactly what we owned them to do.

That’s not a reason to buy more energy now because it just had a great month. And it’s certainly not a reason to abandon technology because it had a bad one.

In fact, the first few days of August made that argument for us. Oil gave back much of its July surge as geopolitical tensions eased, and both the S&P 500 and Dow went on to set new record closes.

Anyone who dramatically repositioned a portfolio around July’s winners would already be reconsidering those decisions.

That’s performance chasing, not investing.

Diversification means accepting that something in your portfolio will almost always disappoint you. If everything you own is going up at the same time, there’s a decent chance you aren’t actually very diversified.

July showed us the other side of that bargain. Some of the investments that hadn’t been particularly exciting suddenly earned their keep.

So the question coming out of July isn’t “What should we buy now?”

It’s much simpler:

Does your portfolio still reflect the allocation you intentionally chose for your goals, your time horizon, and your ability to tolerate risk?

If the answer is yes, July is probably a month to learn from rather than a month to react to.

Sometimes the best thing we can do is let diversification do its job.

Data Sources

Market and economic data referenced in this commentary are derived from publicly available sources believed to be reliable, including S&P Dow Jones Indices, Nasdaq, Russell Investments, MSCI Inc., FactSet Research Systems, the U.S. Bureau of Economic Analysis, the U.S. Bureau of Labor Statistics, Federal Reserve Banks, the U.S. Census Bureau, University of Michigan Surveys of Consumers, the National Association of Realtors, CME Group, the Energy Information Administration, and major commodity exchanges.

Additional market context was drawn from The Wall Street Journal, Reuters, Bloomberg, Associated Press, Financial Times, Barron’s, MarketWatch, and other financial-data providers.

Key releases include the Bureau of Economic Analysis second-quarter 2026 advance GDP estimate; Bureau of Labor Statistics June 2026 CPI and second-quarter Employment Cost Index; U.S. Census Bureau June retail sales; National Association of Realtors June pending home sales; University of Michigan July 2026 Surveys of Consumers; July manufacturing surveys from the Federal Reserve Banks of Dallas and Richmond; and FactSet’s July 31, 2026 S&P 500 Earnings Season Update.