Your July 2026 market update: tech stocks, Iran, and interest rates lead to flat performance across the world

This is part of our monthly series. Catch up on last month’s summary here: Your June 2026 market update: Keir Starmer resigns, big shifts in big tech, and key interest rate decisions

‍

It’s said that history doesn’t repeat, but it rhymes. That feels relevant when looking at July market performance. 

The month’s news cycle was almost a ‘greatest hits’ of 2026 so far, as we saw: 

• US tech companies dominating headlines;
• questions about where interest rates might be headed;
• political change in the UK;
• tensions in the Middle East leading to restricted oil and gas supplies; and
• the US imposing tariffs on its trading partners.

All these events created headwinds for the world’s major markets, leading to flat and falling performance this month.

As ever, a month is a snapshot. Zoom out, and markets have historically trended upwards over time. Take a look at what happened in July.

The headlines: tech stocks fall as investors move to defensive assets

Markets reacted to global uncertainty this month. That led some of the biggest companies to drop, taking markets with them. In response, more defensive assets such as banking and utilities performed well.

The S&P 500 lagged this month. Largely, that’s down to the Magnificent Seven, a group of tech stocks that comprise some of the biggest companies in the world. 

Investors are concerned about the true profitability of Artificial Intelligence (AI). And these businesses are racing to outcompete each other for dominance in the sector. 

While earnings reports were broadly positive, spending plans spooked investors. That led to a bit of a market correction (more on this below).

US markets were also impacted by geopolitical updates. 

• Renewed conflict between the US and Iran, restricting oil and gas flow. This hurt markets before, pushing up energy prices. This can affect costs across the economy. As these increase, consumers cut back on spending, leading to lower performance in businesses. 
• New tariffs on the US’s trading partners, harming growth. This didn’t send markets tumbling like the first set of tariffs in April 2025. It may take some time for this change to filter through, so it might not be reflected fully in the data yet.

Markets also struggled across Asia. Japan felt the effects of the drop in AI stocks, as did South Korea and China. 

These countries are home to companies which have benefited from the AI buildout. That includes semiconductor producers like SK Hynix in South Korea, and Tokyo Electron in Japan.

Before July, they’d carried the countries’ markets to some notable growth this year. For example, South Korea’s KOSPI index doubled in value in the first half of 2026.

So, investors’ nervousness about the future of the AI sector and the shift into defensive options harmed Asian markets.

The UK and Europe were the biggest beneficiaries of this shift in July. Both the FTSE 350 and MSCI Europe Ex-UK are mostly made up of ‘old economy’ companies like those in energy, banking, and mining.

Investors often seek shelter in such assets when uncertainty increases. So, as tech companies dragged, these stocks performed well.

This also explains the S&P 500’s flat performance. While its flagship tech giants have driven growth, it also contains a huge number of these more defensive stocks. That’s left it balanced out at a small increase in value.

All this is underpinned by concerns around inflation and interest rates - more on this later.

Mixed results in US tech stocks

Six of the Magnificent Seven reported earnings in July.

Investors tend to closely watch most companies during earnings seasons, as it gives a sense of the direction of specific stocks.

But these businesses’ earnings reports are even more key. They make up such a large percentage of the US market, and the world markets as a result. 

Plus, other businesses - particularly in Asia - rely on them for custom. So, when they move, it can take the world markets with them.

It was a mix of fortunes during this earnings season.

Amazon and Microsoft announced revenue increases and relative successes in the costs and efficacy of their AI infrastructure investments.

However, investors shunned Meta and Apple, with each seeing their shares fall after reporting their earnings.

Both companies reported increases in sales. But, for Meta, an eye-watering minimum of $130 billion to spend on its AI buildout had investors wondering when it would become profitable.

Apple hasn’t staked its future in the AI buildout. But it still needs the components to build its phones that the other tech giants are using on data centres and AI infrastructure. Investors were spooked by these supply constraint concerns.

As mentioned above, the S&P 500 increased slightly this month. Poor tech stock performance was offset by gains elsewhere.

But, when looking at the Nasdaq - an index made up primarily of tech stocks - it was down by 10% from its peak this year.

This puts it in the territory of a market ‘correction’, marked by a fall of 10-20%. Arguably, that means stocks are now priced relative to what they’re worth.

Investors moved into defensive assets amid challenges around the world

Of course, as is often the case for markets, this value didn’t just disappear. Instead, investors rotated into different, more defensive assets.

These are businesses that perform slowly and steadily - think sectors like banking, energy, and consumer goods. 

Such businesses might not have the same growth potential as something like a tech stock. But they can be placed to ride out periods of uncertainty as their customer bases are often constant, even when circumstances slow spending.

Right now, that includes things like:

• the conflict between the US and Iran, and the possibility of energy prices staying higher for longer;
• the newly announced tariffs in the US and what they might mean;
• inflation and the rising cost of living; and
• interest rates (more on this below).

For example, in the UK, Unilever - the owner of brands like Vaseline and Dove - delivered its best quarter for sales volumes in over a decade.

Similarly, in the US, the big winners were banks. Wall Street giants like Bank of America and JP Morgan reported strong earnings from trading and investment banking.

With uncertainty abound, investors preferred these more tangible investments.

Interest rates held across the board

All this month’s performance has been underpinned by central banks voting on interest rates. 

Interest rates are one of the main tools central banks have for controlling inflation. When inflation’s high, raising interest rates can slow spending and bring it down. Meanwhile, when it’s low, cutting rates can stimulate the economy.

Currently, inflation’s above the 2% target in most economies. So, we might expect rises to come. 

Yet, in the most recent reviews, the world’s major banks held their rates. That includes the:

• Bank of England (BoE);
• European Central Bank (ECB);
• US’s Federal Reserve (Fed);
• Bank of Japan (BOJ); and  
• People’s Bank of China (PBOC).

Notably, the BOJ and ECB raised rates last month already. So, their holds seem less surprising. 

For the rest, it seems to be a matter of time before they follow suit. Three of nine BoE committee members voted for a rate rise this month, as did three of the Fed’s 12 members.

Inflation's still running above target in these economies. That means we might see some countries follow Japan and Europe in raising rates this year.

This could influence markets. Interest-paying assets, such as bonds, could become more attractive. 

Meanwhile, rising borrowing costs could be consequential in the UK, especially for the government. 

New Prime Minister Andy Burnham’s promised to focus on the cost of living. That's all while carrying out his “business-friendly socialism” strategy from his days as Mayor of Manchester. 

Bond markets responded negatively to the new Prime Minister, with concerns that he’ll increase borrowing to fund his spending plans. 

Increased interest rates could make that even more expensive. So, we could see a similar reaction later in 2026 if that were to happen.

Risk warning

As always with investments, your capital is at risk. Past performance is not an indicator of future performance. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.