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Our market summary
July saw improved investor sentiment as political uncertainty eased, and clarity emerged around US trade and fiscal policy. Key US trade agreements with Vietnam, Japan, and the EU helped reduce fears of an escalating global trade war. Equity markets responded positively, with global equities up 5.0% over the month. Meanwhile, bond markets faced pressure from rising yields reflecting both a better outlook for growth and concerns around US fiscal policy. Overall, markets reflected the cautiously optimistic sentiment of investors although concerns remain around high valuations in some regions and sectors.
US
US equities were up by 5.9% over the month, led by technology stocks, with the Magnificent Seven companies such as Meta, Microsoft, and Alphabet reporting strong Q2 results, driven by high demand for cloud computing and renewed enthusiasm around artificial intelligence (AI). Defensive sectors including healthcare and consumer staples lagged. Meanwhile, the passing of the ′Big Beautiful Bill′ added fiscal stimulus, providing support for cyclical and growth stocks.
Europe
European equities posted mixed results resulting in a 0.1% loss in local currency terms. However, the weakness of the pound versus the euro in July saw this equate to a 1.0% gain for sterling-based investors. The tariff settlement with the US was generally seen as a capitulation, but there was a sense of relief as the threat of even higher tariffs was averted. Strong earnings in healthcare and financials supported returns, but technology stocks underperformed due to the negative impact of US trade policy. Elsewhere, real estate and utilities struggled due to their interest rate sensitivity, with the European Central Bank (ECB) having signalled it is nearing the end of its rate cutting cycle.
UK
UK equities delivered positive returns ending the month up by 3.8%. This was led by energy, consumer staples, telecoms, and healthcare – which was supported by strong earnings updates from some large pharmaceutical companies. Real estate and technology were the laggards over the month. Elsewhere, government borrowing exceeded expectations amid rising debt costs, and political developments, including welfare concessions, raised concerns over fiscal discipline.
Emerging markets
Emerging markets were up 5.6% in July, driven by strength in Taiwan, China, Korea, and Thailand. AI optimism and trade progress supported sentiment. China showed economic resilience, with better-than-expected growth and industrial output, and Korea benefited from a favourable US trade deal. Meanwhile India and Brazil posted losses as they were impacted by US tariff-related risks. They face US tariffs of 25% and 50%, respectively.
Fixed income
Fixed income markets faced headwinds from rising yields and fiscal concerns. US Treasury yields climbed (meaning prices fell) due to the combination of inflation concerns, better than expected economic data, and deficit worries. The US Federal Reserve held rates in the US, but political pressure is mounting. Eurozone yields rose as the ECB maintained rates and signalled limited appetite for future cuts. UK gilts saw a sell-off after higher-than-expected inflation numbers.
Performance review
In July, the Monthly Income and Monthly Income and Growth Portfolios delivered returns of 1.9% and 2.7%, respectively. Both portfolios were slightly behind their Investment Association (IA) performance comparators.
US equities were the main positive driver of performance as corporate earnings reports were robust, and congress passed the ′Big Beautiful Bill′ with its various tax cuts and spending measures. Several trade deals also buoyed investor sentiment, with the prevailing narrative being that the US seems to be getting what it wants in negotiations.
Our fixed income holdings did comparatively little over the month, although local emerging market debt was top of the pile. Meanwhile, returns from our alternatives holdings were modest but positive.
Key Takeaways
- July saw positive returns due to political uncertainty easing and more clarity around US trade and fiscal policy.
- Markets remain cautiously optimistic although concerns around tariffs, inflation, and interest rates remain.
- Diversification remains the name of the game for investors during this period of market uncertainty.
Source: Quilter and Factset as at 31 July 2025. Total return, percentage growth in pounds sterling except where shown. The performance shown for global equities is represented by the MSCI AC World Index, US equities by the MSCI USA Index, the Magnificent Seven by the Roundhill Magnificent Seven ETF, European equities by the MSCI Europe ex UK Index, UK equities by the MSCI United Kingdom All Cap Index, and emerging market equities by the MSCI
Performance summary
Portfolio activity
We increased our weighting in the AXA US Short Duration High Yield Fund and the CVC Income & Growth investment trust. Both are relatively high-yielding holdings, and we have confidence that their management teams will continue to deliver strong returns. These income enhancing trades follow an increase to our holding in local currency emerging market debt in late June. We funded these new purchases with cash from the portfolios.
Investment outlook
It has been quite a year so far. China’s DeepSeek artificial intelligence model challenged the tech dominance of the US, President Trump imposed sweeping tariffs on every country in the world (before pausing them), and Israel and Iran engaged in a brief war culminating in the US bombing of Iranian nuclear sites. Had all this been known on 1 January, few would have guessed that US, European, and UK equity markets would be up by between 8.8% and 13.4% in local currency terms, although a weaker US dollar eradicated almost all US share price gains for sterling-based investors.
Tariffs slowing growth
Global economic growth was slowing already but tariffs are a further impediment. A US versus rest-of-world trade war has different effects depending on where you are in the world. In the US it is a negative supply shock that will play out through higher prices and lower import volumes. Elsewhere, it is a negative demand shock, resulting in oversupply and potentially lower prices. This means the monetary policy response to softer growth may be more limited in the US than elsewhere.
Deficit concerns remain
Europe is turning a corner, galvanised by the unwillingness of the US to prop up NATO alone. Commitments to increase defence and infrastructure spending could help the region overcome its demand shortfall, which would be a boost for shares in domestic companies. Meanwhile, the US government continues to spend like there is no tomorrow. All this means more debt will be issued on both sides of the Atlantic, which could push up bond yields despite softer growth.
Opportunities for active managers
Investor sentiment surveys are far from euphoric, so there is a good chance that risk markets continue to climb to new highs. Meanwhile, our active managers see plenty of opportunities. However, while we are modestly overweight equities, we have seen several bouts of volatility in asset prices over recent quarters. Consequently, we are mindful of position sizing as the risk of unexpected events catching us out seems high in the current climate.
Helen Bradshaw
Portfolio Manager
CJ Cowan
Portfolio ManagerSolutions
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