Market Commentary

July 2026 was a volatile month for global financial markets as investor sentiment shifted from the optimism that had fuelled artificial intelligence and technology-related shares earlier in the year, towards concerns over elevated valuations, persistent inflationary pressures, geopolitical tensions in the Middle East and a cautious stance from major central banks.

While corporate earnings generally remained supportive, investors became increasingly sensitive to economic data releases, interest rate expectations and the potential inflationary impact of higher energy prices. Despite periods of heightened volatility, underlying economic conditions across most major economies remained relatively resilient.

Strong corporate earnings in developed markets helped support a recovery in equity markets towards month-end, although performance diverged significantly across regions and sectors. This underscores the importance of maintaining well-diversified portfolios and focusing on quality businesses capable of navigating an increasingly uncertain macroeconomic environment.

International markets delivered mixed returns during July. Technology-related shares remained under pressure as investors reassessed elevated valuations and future earnings expectations, while more defensive sectors and traditional value-oriented businesses generally outperformed. Inflation trends continued to moderate across several developed economies, although policymakers remained cautious given the ongoing risks posed by geopolitical developments, supply-chain disruptions and elevated energy costs.

USA

US markets experienced another month of volatility, although strong second-quarter corporate earnings and continued economic resilience helped support a recovery towards month-end. The Nasdaq declined 3.2%, the S&P 500 fell 0.1%, while the Dow Jones Industrial Average outperformed with a gain of 0.3%.

Economic data provided a mixed picture. Headline inflation for June slowed to 3.5% year-on-year from 4.2% in May, representing a meaningful moderation in price pressures. Core inflation remained unchanged at 2.9%, while the Federal Reserve’s preferred inflation gauge, Personal Consumption Expenditures (PCE), eased marginally to 3.3% year-on-year from 3.4% previously.

Economic growth also moderated during the quarter, with second-quarter GDP growth slowing to 1.5% from 2.1% in the first quarter. Despite improving inflation data, the Federal Reserve maintained a cautious stance, leaving interest rates unchanged and reinforcing its commitment to returning inflation sustainably towards target levels.

Europe

European markets experienced volatility during July as higher energy prices, supply concerns and cautious commentary from the European Central Bank weighed on sentiment. Nevertheless, a stronger-than-expected earnings season helped offset these concerns, allowing major indices to finish the month in positive territory. Germany’s DAX rose 2.5%, while France’s CAC 40 gained 1.3%.

Inflation continued to moderate across the Eurozone, declining to 2.8% from 3.2% previously. The moderation was primarily driven by easing energy prices, although underlying inflationary pressures remain a concern. The ECB kept its deposit rate unchanged at 2.25%, adopting a tactical pause following its June increase while maintaining a hawkish bias regarding future policy decisions.

European policymakers continue to monitor the inflationary effects of ongoing Middle East tensions and supply-chain disruptions, both of which remain potential risks to growth and price stability.

UK

The UK market delivered a particularly strong performance during July, with the FTSE advancing 3.5% and reaching a new record high towards month-end. Investor sentiment benefited from resilient corporate earnings, while the UK continued to attract interest from investors seeking alternatives to the volatility affecting global technology shares.

Inflation eased further to 2.6% year-on-year from 2.8% in May, largely due to falling energy prices. The Bank of England left interest rates unchanged at 3.75%, reflecting a continued wait-and-see approach as inflation gradually trends lower.

While political developments remained a source of uncertainty, markets were primarily driven by improving earnings prospects and moderating inflation expectations.

China

Chinese markets delivered mixed performances during July as investors weighed slowing domestic economic activity against continued strength in exports. The Hang Seng Index rallied strongly by 13.1%, while the Shanghai Composite declined by 6.4%.

Second-quarter GDP growth slowed to 4.3%, below the government’s target range. Economic data highlighted an increasingly divergent economy, with consumer demand remaining subdued while exports continued to benefit from strong global demand for semiconductors, artificial intelligence components and electric vehicles. Retail sales expanded by only 1.0%, while exports increased by 27% year-on-year.

Manufacturing activity weakened during the month, with the official manufacturing PMI declining into contraction territory at 49.2. Policymakers continue to face the challenge of stimulating domestic demand while preserving export competitiveness and managing rising producer-cost pressures.

Japan

Japanese equities experienced a sharp correction during July, ending a period of sustained gains. The Nikkei declined by 8.1% as global technology weakness, currency market interventions and expectations of further policy tightening weighed on investor sentiment.

Headline inflation increased to 1.7% from 1.5% previously, reflecting higher commodity and energy costs. The Bank of Japan left interest rates unchanged at 1.0% following its June increase but maintained a notably hawkish tone, warning of upside risks to inflation.

Markets remain sensitive to the prospect of further policy normalisation, particularly given the impact that higher borrowing costs could have on economic growth and equity valuations.

South Africa

The local market delivered a positive return during July, with the FTSE/JSE All Share Index advancing 1.1%. Performance was supported by strength in resource companies and rand-hedge stocks, benefiting from firmer commodity prices and improved investor appetite for defensive earnings streams.

The Resources sector was the strongest performer, rising 2.2% for the month, followed by Property (+1.9%), Financials (+1.2%) and Industrials (+0.3%). Notable gainers included Mondi, Sappi, Sasol, South32, Prosus and Naspers.

Inflation edged higher during June, with headline CPI increasing to 5.0% year-on-year from 4.5% previously, while core inflation rose to 4.1%. Despite these pressures, the South African Reserve Bank surprised markets by leaving interest rates unchanged at 7%, while simultaneously raising its 2026 economic growth forecast to 1.4%.

Key Investment Risks Emerging in July 2026

1. AI Valuation Risk – The correction in global technology shares highlights growing investor concerns regarding elevated valuations and the substantial capital expenditure required to support continued AI development. While the long-term investment case remains compelling, expectations remain exceptionally high.
2. Persistent Inflation Risk – Although inflation moderated in several developed markets, price pressures remain above central bank targets. Geopolitical disruptions and higher energy costs continue to present upside risks to inflation globally.
3. Geopolitical and Energy Market Risk – Ongoing tensions in the Middle East continue to influence commodity prices, investor sentiment and inflation expectations. Any renewed escalation could result in further energy price volatility and slower economic growth.
4. Central Bank Policy Risk – Major central banks maintained a cautious and hawkish stance during July. Markets remain highly sensitive to changes in interest-rate expectations and inflation data releases, increasing the likelihood of continued volatility across asset classes.
5. Global Growth Risk – Slowing economic growth in China and moderating GDP growth in the United States highlight ongoing concerns regarding the sustainability of the global expansion cycle. Weaker growth could ultimately affect earnings expectations and risk appetite.

The sectors most exposed to current market risks remain technology, consumer discretionary and cyclical growth companies. Technology shares continue to face valuation scrutiny, while consumer-focused businesses remain vulnerable to slowing economic activity and persistent inflationary pressures. Conversely, defensive sectors, quality dividend-paying businesses and selected commodity producers may continue to offer resilience in a more uncertain environment.

Investment Outlook

Global markets continue to navigate a landscape characterised by moderating inflation, resilient but slowing economic growth, geopolitical uncertainty and evolving central bank policy expectations. While inflation has generally eased across major economies, risks remain elevated, particularly given the potential impact of energy markets, geopolitical developments and interest rate uncertainty on future growth and inflation outcomes.

The recent volatility in technology shares serves as a reminder that even the strongest long-term investment themes can experience periods of correction when valuations become stretched. Artificial intelligence remains one of the most compelling structural growth opportunities of the coming decade, but investors should remain disciplined and avoid excessive concentration in any single sector, theme, or region.

Against this backdrop, we continue to believe that a diversified, valuation-conscious investment approach remains the most appropriate strategy. Maintaining exposure across a broad range of asset classes, sectors and geographies allows portfolios to participate in long-term growth opportunities while helping to mitigate the impact of market volatility and unforeseen risks.

While uncertainty is likely to persist in the months ahead, improving inflation trends, resilient corporate earnings and selective opportunities across global markets provide a constructive backdrop for long-term investors.

“Successful investing is not about predicting the future; it is about preparing for it.”

As always, maintaining discipline, remaining patient and focusing on long-term objectives rather than short-term market noise remains the key to successful wealth creation.