Monthly Market Commentary – July 2026

(As of 07/31/2026)

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The Signal

Key Movements

Markets spent July repricing a monetary regime that refused to ease. A Fed leaning toward hikes rather than cuts, a war-driven energy shock feeding inflation, and mounting scrutiny of AI capital spending combined to push long yields higher and equity leadership away from mega-cap technology. Risk assets remained broadly resilient, but the threshold for sustaining premium valuations rose sharply.

The month’s dispersion told the story. The Nasdaq 100 fell 6.59% and the S&P 500 slipped 0.06%, while the equal-weight S&P gained 1.01% and international developed markets advanced, with MSCI EAFE up 1.98% and MSCI World ex-US up 2.09%. Energy dominated, as the S&P 1500 Energy sector jumped 12.13% and the broad GSCI Energy spot index surged 20.06% on renewed Middle East hostilities. Financials rose 5.94% while industrials fell 3.75% and small caps dropped 3.03%, a rotation away from crowded momentum toward cash-flow and rate-sensitive names.

Trend signals confirmed the split rather than a clean regime change. The E-Mini Nasdaq 100 and Russell 2000 carried weak near-term tone even as their longer-horizon trends stayed constructive, suggesting the July drawdown was more consistent with a leadership reset than a structural break. Brent and WTI crude showed firm short-term momentum against a more neutral medium-term backdrop, consistent with a geopolitical premium rather than durable demand strength. Gold’s short and medium trend stayed heavy despite a late bounce, and bonds sold off across the curve, with the 30-year yield up 30bp and the 10-year up 24bp. For risk monitoring, the rise in the MOVE index alongside firm energy and soft duration mattered most: cross-asset volatility appeared to shift from equities into rates and commodities.

Trend labels as of 07/31/2026

Equities

Contract	Short-Term	Medium-Term	Long-Term
Hang Seng Index	Very Positive	Slightly Positive	Neutral
Euro Stoxx 50	Positive	Positive	Positive
E-Mini S&P 500	Slightly Positive	Positive	Positive
Russell 2000	Negative	Positive	Positive
E-Mini Nasdaq 100	Negative	Positive	Positive
Nikkei 225	Negative	Positive	Positive

Bonds

Contract	Short-Term	Medium-Term	Long-Term
Long Gilt	Negative	Negative	Negative
Japanese Bond	Negative	Negative	Very Negative
2Y US T-Note	Negative	Negative	Negative
Long German Bond	Very Negative	Negative	Negative
30Y US T-Bond	Very Negative	Negative	Negative
10Y US T-Note	Very Negative	Negative	Negative

Commodities

Contract	Short-Term	Medium-Term	Long-Term
Wheat	Positive	Slightly Positive	Positive
Brent Crude Oil	Positive	Neutral	Positive
WTI Crude Oil	Positive	Neutral	Positive
Corn	Positive	Negative	Slightly Negative
Soybeans	Slightly Positive	Slightly Negative	Slightly Positive
Silver	Negative	Very Negative	Slightly Negative
Gold	Negative	Very Negative	Negative
Natural Gas	Very Negative	Negative	Positive

Currencies

Contract	Short-Term	Medium-Term	Long-Term
Australian Dollar	Positive	Neutral	Positive
Canadian Dollar	Positive	Negative	Negative
Japanese Yen	Positive	Slightly Negative	Negative
Euro	Positive	Slightly Negative	Negative
British Pound	Positive	Slightly Positive	Slightly Positive
Swiss Franc	Slightly Negative	Very Negative	Very Negative
US Dollar Index	Negative	Slightly Positive	Positive

Calculations by Kensington Asset Management.

Drivers

Important themes to consider

On policy, the FOMC held its target range at 3.50%-3.75% but delivered a divided 9-3 vote, with three regional presidents pressing for an immediate hike. Chair Warsh withheld forward guidance and leaned on higher market yields as evidence that financial conditions were tightening on the Fed’s behalf. Markets read the combination of institutional division and strategic ambiguity as an increase in policy uncertainty rather than a conventional pause, and long-dated Treasuries sold off as investors demanded more term premium against persistent inflation risk.

Energy and inflation reasserted themselves as renewed US-Iran hostilities pushed crude sharply higher and restored a geopolitical risk premium. June CPI had actually fallen 0.4% on the month, the largest decline since April 2020, as energy dropped 5.7% and core was flat, pulling annual headline inflation to 3.5%. That relief looked increasingly fragile as oil climbed back through the month, complicating the disinflation narrative and reducing confidence that price pressures would converge toward target without extended restraint.

Corporate earnings shifted the AI debate from promise toward proof. Investors scrutinized capital allocation rather than headline results, and the reaction was asymmetric: Microsoft surged on Azure strength while Meta fell on a weaker outlook despite raising its capital-spending forecast. Alphabet lifted planned outlays toward $205 billion and pushed free cash flow negative, and the Bloomberg Magnificent 7 index shed roughly $767 billion in a single session, as markets began pricing whether extraordinary infrastructure spending would generate sustained economic benefits.

Looking Forward

What we’re watching

August pivots on whether the July repricing was a temporary adjustment or the start of tighter conditions holding longer. If incoming data keep core inflation sticky and energy elevated, the market will attach rising odds to a September hike, pressuring long-duration equities further and keeping duration on the defensive; the roughly 63% implied probability of a September move leaves ample room for repricing in either direction. If the labor market cools more visibly and oil relief holds, the hike case fades and the rotation into cyclicals and international equities could extend without a broad Risk-Off. The binding question is inflation versus growth rather than growth alone, with energy the swing variable that could tip the Fed. Near-term catalysts include the August 7 payrolls report, August 12 CPI, and Warsh’s Jackson Hole remarks late in the month, each capable of influencing market expectations regarding the September path. Any escalation around the Strait of Hormuz would amplify the inflation channel and revive the correlated cross-asset stress that equities largely avoided in July.

Investor Lens

Practical framing from investors

Clients will ask why a headline S&P 500 near flat masked such turmoil. The answer lies beneath the index: leadership narrowed within technology while participation broadened across financials, energy, and international markets. Equal-weight benchmarks outperformed the cap-weighted index, reflecting broader market participation than one driven by a handful of names. Explaining that concentration cuts both ways, and that broadening participation can support the tape even when megacaps stumble, is more useful than fixating on the index level alone.

Concerns about AI valuations deserve a measured framing. The debate has shifted from whether the theme is real to whether a substantial portion of expected future profit is already priced. Firms demonstrating monetization and free-cash-flow visibility were rewarded, while those accelerating spending without clear returns faced discipline. For portfolios, the read-through is that dispersion within technology could stay wide, making the quality of earnings and capital allocation more decisive than broad thematic exposure.

Questions about bonds failing to cushion equity weakness are fair given the month’s price action. Long duration sold off alongside stocks as term premium rose and inflation risk hardened, an unusual pattern that reflects policy and fiscal uncertainty rather than recession fear. The practical implication is that the diversification properties investors may expect from high-quality fixed income can weaken when the shock is inflationary rather than growth-driven, a distinction worth conveying before drawing conclusions about a single month.

Returns as of 07/31/2026

Equities

Index	1M	3M	QTD	YTD	TTM
MSCI World ex US Index	2.09%	4.91%	2.09%	11.92%	25.73%
MSCI EAFE Index	1.98%	5.32%	1.98%	12.08%	25.06%
S&P 500 Equal Weight Index	1.01%	6.18%	1.01%	13.26%	19.24%
Dow Jones Industrial Average Index	0.38%	6.13%	0.38%	10.17%	20.91%
S&P 500 Index	-0.06%	4.19%	-0.06%	10.14%	19.56%
MSCI Emerging Markets Index	-3.03%	4.93%	-3.03%	20.25%	37.04%
Russell 2000 Index	-3.03%	4.99%	-3.03%	18.85%	34.18%
Nasdaq 100 Index	-6.59%	3.17%	-6.59%	12.38%	22.58%

Equity Sectors

Index	1M	3M	QTD	YTD	TTM
S&P 1500 Energy Sector Index	12.13%	0.32%	12.13%	35.08%	41.88%
S&P 1500 Financials Sector Index	5.94%	9.49%	5.94%	5.55%	11.23%
S&P 1500 Real Estate Sector Index	2.77%	3.69%	2.77%	15.01%	16.20%
S&P 1500 Health Care Sector Index	2.52%	12.49%	2.52%	6.90%	27.71%
S&P 1500 Consumer Staples Sector Index	2.15%	-0.45%	2.15%	10.53%	9.68%
S&P 1500 Information Technology Sector Index	2.15%	-0.45%	2.15%	10.53%	9.68%
S&P 1500 Utilities Sector Index	2.15%	-0.45%	2.15%	10.53%	9.68%
S&P 1500 Consumer Discretionary Sector Index	0.77%	-0.84%	0.77%	0.65%	7.55%
S&P 1500 Communications Services Sector Index	0.58%	-7.97%	0.58%	1.48%	19.08%
S&P 1500 Materials Sector Index	-2.24%	-3.04%	-2.24%	9.15%	14.67%
S&P 1500 Industrials Sector Index	-3.75%	2.59%	-3.75%	16.25%	20.02%

Bonds

Index	1M	3M	QTD	YTD	TTM
ICE BofA US Corporate High Yield Index	-0.29%	0.45%	-0.29%	1.59%	5.02%
S&P US Aggregate Bond Index	-1.16%	-0.60%	-1.16%	-0.33%	2.89%
ICE BofA US Corporate Investment Grade Index	-1.55%	-0.70%	-1.55%	-0.56%	2.70%

Commodities

Index	1M	3M	QTD	YTD	TTM
S&P GSCI Energy Index (Spot)	20.06%	-14.75%	20.06%	51.10%	30.64%
S&P GSCI Commodities Index (Spot)	10.77%	-10.71%	10.77%	25.09%	23.85%
S&P GSCI All Metals Index (Spot)	2.45%	-5.80%	2.45%	1.87%	29.40%
S&P GSCI Agriculture and Livestock Index (Spot)	0.03%	-4.63%	0.03%	4.66%	6.92%

Rates, Credit, Volatility

Index	1M	3M	QTD	YTD	TTM
US 30Y Treasury Yield	30.0 Bps	23.0 Bps	30.0 Bps	37.0 Bps	32.0 Bps
US 10Y Treasury Yield	24.0 Bps	28.0 Bps	24.0 Bps	50.0 Bps	31.0 Bps
ICE BofA US MOVE Index	11.06 Pts	10.95 Pts	11.06 Pts	19.06 Pts	3.18 Pts
Bloomberg HY OAS Index	10.0 Bps	2.0 Bps	10.0 Bps	4.0 Bps	-1.0 Bps
US 2Y Treasury Yield	9.0 Bps	35.0 Bps	9.0 Bps	76.0 Bps	29.0 Bps
Bloomberg IG OAS Index	3.0 Bps	-2.0 Bps	3.0 Bps	0.0 Bps	0.0 Bps
CBOE Volatility Index	-0.46 Pts	-0.9 Pts	-0.46 Pts	1.04 Pts	-0.73 Pts

Calculations by Kensington Asset Management.

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