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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
July was broadly a positive month for equity and credit markets buoyed by strong corporate earnings, particularly from AI-related companies in the US. This coupled with a pause in the recent currency weakness cycle of the US dollar providing an added boost to US equity returns for sterling-based investors.
Against this backdrop, portfolio returns ranged from 1.0% for the Managed Blend 3 Portfolio to 5.2% for Managed Blend 10.
Investment outlook
The first half of the year has been quite the roller coaster for equity and bond markets reflecting the multiple shifts in policy and geopolitics around the world. Had all this been known on 1 January, few would have guessed that US, European, and UK equity markets would each 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.
Uncertainty remains
Markets have rebounded from April lows and even surpassed February highs, suggesting resilience despite persistent media pessimism and political distraction. However, the disconnect between equity valuations and the underlying risks remains. Tariff announcements continue to cloud the outlook and while investor sentiment is far from euphoric, the potential for further volatility is high.
Who will pay the tariffs?
The crux of the issue remains: who will pay for the tariffs – US consumers, US corporates, overseas corporates, overseas consumers, or any combination of the above. Inflationary pressures and margin squeezes are starting to appear, and while tax cuts and spending measures from the ′Big Beautiful Bill′ may offer relief, they are unlikely to fully offset the drag on growth. The sustainability of debt, especially in the US and UK, is also increasingly under scrutiny.
Wait and see
Despite the noise, active managers continue to find opportunities to add alpha. However, with trade announcements still dominating headlines and geopolitical tensions lingering, we remain slightly cautious. Our approach continues to be one of ‘wait and see’ as we closely watch economic data developments over the next few months.
Stuart Clark
Portfolio Manager
Helen Bradshaw
Portfolio Manager
Bethan Dixon
Portfolio ManagerSolutions
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