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July saw a real shift in investors’ focus across equity markets and regions. The month was marked by a sharp sell-off in technology and AI-related stocks. The sell off begun in Asia where semiconductor stocks tumbled over rising concerns about competition and the potential impact soaring RAM prices might have on the appetite for AI. Chinese firm, Moonshot AI, unveiled new models that narrow the performance gap with US systems at significantly lower costs. According to OpenRouter, Chinese models made up 46% of all token usage by US companies at the start of July, raising further question marks over the long-term prospects for American LLMs and the investments being made by big tech.

Investors have begun to question whether the capital expenditure that has been poured into this area of the market will ultimately pay off in terms of the revenue it is expected to generate. We’re starting to see hyperscalers move from being highly free cash flow positive to free cash flow negative as a result of continued and substantial investment in AI infrastructure. Research by Japanese finance newspaper, Nikkei Asia, also found that Meta, Oracle, Amazon, Microsoft and Alphabet have a combined $1.65tn in AI investment debt that they’ve been keeping off their official balance sheets. While technically not illegal, the worrying trend means these debts surpass their official balance sheet debts of $1.35tn. All of this meant that during the month, growth-oriented areas of the market sold off, while more traditional sectors such as financials and energy delivered strong returns as investors rotated into these areas.

The general shift in investors’ sentiment away from technology and AI benefited the UK market, which has greater exposure to traditional sectors such as banks, energy, mining and tobacco. The UK index delivered a positive return of 3.3%, while the US market declined by 1.6%. Other factors also contributed to market movements during the month, including the re-escalation of tensions between the US and Iran and investor uncertainty stemming from the lack of forward guidance from the Federal Reserve. Interest rates were kept on hold in the US, but this did not prevent bond yields from rising, with implications for long-term borrowing costs. Against the backdrop of concerns surrounding AI and technology stocks, Asian and Emerging Markets posted negative returns, while Europe and Japan were broadly flat. Across most regional equity markets, both at the sector and individual stock level, the month was characterised by a high degree of price volatility.

Taking South Korea as an example, the market has delivered exceptionally strong performance in recent months. However, it is heavily dominated by the semiconductor sector and, in particular, by two companies: SK Hynix and Samsung Electronics. As a result, the South Korean market experienced significant losses during the month, driven largely by the sell-off in these two stocks.

Bond markets were also negative over the month, with most government and corporate bond indices declining by around 1%. In the UK yields went up after Nigel Farage decided to resign and hold a by-election in his Clacton-on-Sea constituency. However, they fell again shortly after when Andy Burnham was nominated to be the next Labour party leader and PM. Counter to press expectations, Burnham named John Healey as Chancellor. Healey resigned as Defence Secretary in June in a row over military spending. UK defence stocks like Babcock and BAE surged on the news and the likelihood that Healey will increase defence spending from 2.7% to 3%.

US yields moved higher amid concerns about the lack of forward guidance from the Federal Reserve following its most recent policy meeting. Although interest rates were left unchanged, uncertainty surrounding the future path of monetary policy remained elevated. Emerging market debt was among the weakest-performing fixed income sectors, declining by 3.2%, primarily due to rising US bond yields. Meanwhile, oil prices rose sharply amid renewed geopolitical tensions in the Middle East, particularly between the US and Iran.

Overall, July was characterised by a significant shift in investor positioning and market leadership, accompanied by heightened volatility across several sectors and individual stocks, particularly those with exposure to AI-related themes.

Market returns were mixed in June as investors navigated a complex environment combining de-escalation in the Middle East with uncertainty over the future of AI spending. Tensions between the US and Iran eased following the signing of a Memorandum of Understanding (MoU) which put a pause on the conflict and helped reopen the Strait of Hormuz. While a positive development, markets responded cautiously, with the flow of oil tankers remining significantly below pre-war norms.

In the midst of geopolitical tension, June saw SpaceX list on the US tech index at a record valuation of $1.8 trillion. The stock rallied to $ 2.1tn on its debut trading day, making Elon Musk the world’s first trillionaire. Whilst an apparent success with the IPO raising $75bn, the stock market listing has renewed concerns around elevated valuations in tech and AI related stocks. The AI capital expenditure (capex) theme has been a significant source of market volatility. Investors remain uncertain about whether unprecedented levels of investment in infrastructure and development will generate sufficient returns, while the timeline to profitability remains unclear.

Equity markets were mixed in a month that was characterised by a wave of sector rotation, with previous winners giving up gains in favour of market stalwarts. AI-related names gave back some of their gains while other sectors including healthcare, financials and industrials rallied. The tech dominated US stock market finished slightly negative (-0.2%) whereas value and small cap styles performed well during the month. Asia-ex Japan was the worst performing region (-1.7%) over the month as many AI beneficiaries (i.e. Taiwan Semiconductor, Samsung Electronics and SK Hynix) finished June lower.

The UK market generated gains of 1.2% in the face of political instability. News of Sir Keir Starmer’s resignation has had little impact on equity markets, with markets instead focusing on who Andy Burnham – Starmer’s more than likely successor – will appoint as Chancellor. European equities also performed strongly, returning 2.2% in a month where the ECB hiked rates by 0.25% to 2.25%. The composition of the European market has meant that it has been largely unaffected by recent volatility in the technology sector and has benefitted from the outperformance of value stocks. Finally, Japan posted gains of 1.1%, with improving corporate guidance in chip-related sectors and optimism around a U.S.-Iran ceasefire being the key drivers.

Bonds delivered modest positive returns as sovereign yields declined across many markets, providing some relief despite earlier pressures from geopolitics. Gilts had another positive month up 1%, compounding gains in May, but remain down (-2.3%) year to date after a difficult March. Despite a strong rebound in the last two months, gilts continue to significantly lag short duration credit in 2026, which has weathered volatility well due to having a lower sensitivity to interest rate expectations.

Oil prices reverted to pre-conflict levels post the US-Iran Memorandum of Understanding (MoU), which has helped to ease inflationary pressures to the benefit of interest rate sensitive sectors such as listed property (+3.1%) and infrastructure (+2.3%). Gold was one of the worst performing asset classes down -10.6% on the back of a stronger US dollar, reduced ‘safe haven’ demand post-de-escalation, and hawkish rate outlook. Gold has now fallen 25% from January all-time highs, with the retail money which flooded in to help fuel the rally in 2025 and first quarter 2026 starting to look elsewhere.

At the end of the month, we were hopeful that the MoU between the US and Iran would lead to an abrupt and lasting resolution but events over the last week have dashed those hopes. The unpredictability of both Trump and the Iranian regime have made markets particularly challenging to navigate, reinforcing the importance of remaining focused on underlying fundamentals.

In spite of the conflict in the Middle East, equity markets and risk assets delivered strong returns. The mood music seemed to be that a resolution was strongly favoured by both sides, but the conflict continued to roll on past its 100-day anniversary. Outside of this, markets were generally buoyed by the euphoria around artificial intelligence (AI) investments coupled with some strong fundamental earnings from many corporates in the US. “Magnificent Seven” firms, Amazon, Alphabet and Microsoft all demonstrated returns from their AI investments as their computing units benefited from the intense demand for AI infrastructure. Later in the month, the world’s most valuable company, Nividia, posted stronger than expected earnings with data centre revenue doubling in the last quarter. AI spending helped US GDP rise to 2% in the first quarter of 2026, however May’s reading wasn’t enough to stop US public debt exceeding US annual GDP for the first time since World War Two.

The best performing equity region for the month was Emerging Markets which posted a positive return of over 10%. However, when you start to dig a little deeper, across the Emerging and Asian countries the returns were very different. Again, the AI theme helped drive markets such as South Korea and Taiwan higher thanks to their role in the AI supply chain. However, China did not benefit and their equity market was negative for the month, down nearly 3% on the back of weak domestic sales and industrial production. The broad Asia equity index returned 1.4%, substantially less than the emerging market index. Though Europe has delivered mixed economic data and inflation has been stickier than expected, the region delivered a healthy equity return of nearly 6% on the back of the deescalation of tensions in the Middle East.

The US equity market was up nearly 7% on the back of the AI trend. The AI boom dominated US market growth over the month, with the US information technology sector up 17% in May. Having delivered a stronger-than-expected Q1 GDP number (+2.1% growth), Japanese equities generated returns over 7%. The UK equity market delivered decent if less spectacular returns than many other regions – 2% over the month. In this risk-on environment, broad commodities posted marginally positive return, while gold seemed to lose a bit of its shine and was fractionally negative for the month.

Fixed income markets were volatile over the month as yields contracted and increased based on expectations of shifts in inflation and central bank rhetoric. Kevin Warsh’s appointment as Fed Chair was confirmed by the US senate. Despite the likelihood that he’ll be more sympathetic to the whims of Donald Trump than his predecessor, Jerome Powell, its unlikely he’ll be able to cut interest rates with inflation going in the wrong direction and US job numbers in reasonable health. Overall, fixed income delivered positive returns in May, with the reduction in the conflict in the Middle East being the biggest factor. This saw the price of oil drop below $100 a barrel, relieving some inflationary pressures.

The UK bond market – both UK gilts and corporate bonds – were the best performing of the bond markets, both posting positive returns of 1.9%. In contrast to the employment numbers in the US, here in the UK we saw unemployment unexpectedly rise to 5% and job vacancies fall to a five-year low. Alan Milburn’s independent interim report on young people and work also highlighted how opportunities for young people are declining at an alarming rate with one in six set to be NEET (Not in employment, education or training) within the next five years.

With the Bank of England trying to cope with inflationary pressures, it’s unlikely they’ll be able to cut rates in an attempt to drive jobs growth any time soon.

In general, May was a choppy month but one that ultimately proved fruitful for investors. Now that a memorandum of understanding has been agreed between the US and Iran, we might finally see an end to the conflict and the resumption of oil exports via the Strait of Hormuz. If we do, this could reduce inflationary pressures and improve growth prospects for the rest of 2026.

Over the past month, the escalation of the Middle East conflict has dominated global financial markets. On the last day of February, the US, in coordination with Israel, launched a series of airstrikes and military operations targeting Iranian government and military facilities, including the assassination of the Supreme Leader Ali Khamenei. Iran’s response was swift and included military retaliation across the region against Israel and several other Gulf states. As of the time of writing, there has not been a conclusive resolution to the conflict, and this has resulted in major disruptions to shipping through the Gulf and a sharp increase in energy prices.

Most asset classes were negatively impacted in March with the global equity markets bearing the brunt of volatility, although the selloff was relatively muted in comparison to moves experienced following Trump’s ‘Liberation Day’ tariff announcements a year ago.

Global equity markets fell- 6.3% over the period although regional returns varied. Countries and regions that are more exposed to energy exports from the Gulf were more negatively impacted given the spike in oil prices. This was evident when looking at returns for regions including Japan (-10.4%), Asia (-6.9%) and Europe (-9.2%). Conversely, the US market fared somewhat better (-5.5%) because the country is a net oil and gas exporter and benefitted from a rally in the US dollar.

While recent performance has been disappointing, it is worth noting that global equity returns have been relatively muted so far this year with many regions like the UK, Japan and Emerging Markets still in positive territory.

Most bond indices finished the period lower. Government bond yields moved higher (resulting in bond prices finishing lower) as concerns that the recent surge in oil prices would feed into higher inflation. This was particularly notable to us in the UK where expectations shifted from Bank of England interest rate cuts (prior to the Iran conflict) to potential rate hikes. The UK’s reliance on imported energy may potentially amplify the inflationary impacts of higher energy prices and as a result, gilts fell -3.8% over the month. Short- dated investment grade bonds also finished lower, although the drawdowns were more muted.

Most alternative asset classes also struggled, except for oil which recorded its largest monthly gain on record. Precious metal saw a sharp reversal from record highs, and we saw some weakness across other asset classes such as infrastructure and property given the heightened geopolitical uncertainty.

Needless to say, the conflict in Iran has increased market uncertainty and remains a fluid situation. History suggests that markets often stabilise once the initial uncertainty begins to fade. This pattern was visible following the outbreak of the Russia-Ukraine war and during earlier conflicts such as the Iraq and Gulf wars. While initial reactions were often significant, markets typically recovered as the situation became clearer.

Markets contended with several major macroeconomic events over the month. The US Supreme Court ruled that President Trump was not authorised to impose tariffs under the International Emergency Powers Act (or IEEPA). In response, Trump complied with the ruling however pivoted to alternative measures, issuing a 10% tariff on all countries based on another statute (Section 122 of the Trades Act of 1974). Last week, Trade Secretary, Scott Bessent announced that the 10% tariff will soon be increased to 15%.

Tariff tribulations were overshadowed at the end of the month when the US and Israel launched a series of airstrikes and military operations in Iran that led to the assassination of Iranian Supreme Leader Ayatollah Ali Khamenei. Iran’s response was swift and included military retaliation across the region against Israel and several other Gulf states. So far, low cost Shahed drones have proven to be particularly effective at evading more expensive higher-tech air defences. Needless to say, things are moving very fast at the moment and there’s different developments to digest every day. From our perspective, it’s important to avoid making kneejerk reactions and focus on diversification to help weather market volatility.

Focusing on markets, global equities posted gains (+2.80%) in February. Many of the themes dominating the end of 2025 have continued into 2026 causing the US equity markets to stay somewhat subdued (+1.5%) while other developed markets and emerging markets (+7.2%) carried on outperforming. Looking at developed markets, Japan was a standout returning +10.4% in February alone. This was driven by Prime Minister Sanae Takaichi’s Liberal Democratic Party (LDP) winning a landslide election victory, securing more than two thirds of all seats in the lower chamber. It was the largest political victory in modern Japanese history and markets reacted positively to the clear signal on the country’s political and economic direction. UK equities also posted decent gains of 6.4% driven by large cap names and sectors that benefited from both the AI rotation and concerns about rising oil prices.

US equity returns have been modest, returning just under 1% so far this year. Interestingly, we have seen a meaningful rotation away from mega-cap US technology and growth names over the past couple of months. While some earnings remain strong, there have been concerns about the likely return on investment from artificial intelligence (AI). Companies who have announced more capital expenditure have typically been punished, for example early in the month Amazon had $300bn wiped off their market capitalisation when they reported a 25% higher than expected increase in capital expenditure.

Worries about the impact AI agents and tools will have on software and wealth management firms dragged share prices down in both sectors. In the final week of February, a viral ‘doomsday’ essay by Citrini Research spooked investors, sparking another sell off that hit firms like Uber and Mastercard particularly hard. Conversely, we’ve started to see other areas such as value and small to mid-cap stocks start to outperform.

Bond markets posted decent gains, particularly in the latter half of the month. Growing economic uncertainty, moderating inflation signals and increasing geopolitical risks all helped push bond prices up. Expectations of lower interest rates helped infrastructure related investments while gold also benefitted from geopolitical uncertainty (+7%).

Generally, after a strong start to the year there will undoubtedly be bumps in the road, but even this early into the year “avoiding the noise” seems to be the key message.