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Our market summary
July was mixed for investors. Market leadership shifted away from high-growth technology and AI stocks towards better-valued areas such as energy and financials.
Rising oil prices added inflation concerns, weighing on bonds, while resilient company
earnings helped support sentiment. Find out more by reading our market summary.
Performance review
In July, markets shifted their focus from the rising tensions in the Middle East pushing oil prices higher to whether growing investment in AI is translating into stronger company revenues. AI-related stocks experienced increased volatility as investors became more selective, particularly in some AI hardware companies where valuations and investor positioning were already stretched. Investments that offered diversification away from AI performed better, including UK and developed Asian equities. Fixed income markets came under pressure due to concerns of higher future inflation and uncertainty around the future direction of the US Federal Reserve (the Fed). Against this backdrop of weaker equity and bond markets, the portfolios delivered losses ranging from 0.9% at risk level 3 up to a loss of 1.6% at risk level 10.
The performance figures shown refer to past performance. Past performance is not a reliable indicator of future performance.
Investment outlook
In our previous outlook, we highlighted several unanswered questions around the Middle East conflict, policy direction, Q2 earnings, and the impact of a potential 'super' El Niño. A month on, and many of these questions remain, and in some cases have become more pressing.
Inflation risks remain
Despite recent signs of moderating inflation, we continue to consider what could derail this progress? One risk is the Middle East conflict, where ongoing tensions continue to disrupt energy markets. In July, escalating tensions saw oil prices spike above US$100 a barrel. While the price quickly retreated, petrol pump prices remain elevated due to constrained refining capacity. Another risk is food inflation: could drought conditions in Europe, a ‘super’ El Niño, and fertiliser supply constraints put further pressure on agricultural output and prices?
Policy uncertainty builds
In the UK, markets have welcomed the new prime minister’s commitment to fiscal rules, but early signals suggest a desire to increase spending and support households. How will these plans be funded? Gilt markets have so far given the government the benefit of the doubt, but how long will that continue? Across the pond, the Fed’s July press conference raised more questions than answers. Does their shift in approach signal a more uncertain path for inflation and interest rates?
Earnings resilience tested
Finally, Q2 earnings have been stronger than expected, with many companies exceeding already elevated forecasts. However, as investors become more selective, the focus is shifting. Which companies can convert investment into sustainable revenue growth, and where do valuations remain justified? Within AI, the distinction between winners and losers is becoming less clear-cut. As the investment landscape becomes more complex, that complexity could create greater opportunities for active management.
Stuart Clark
Portfolio Manager
Helen Bradshaw
Portfolio Manager
Bethan Dixon
Portfolio ManagerApprover: Quilter August 2026
QIP 23853/29/17196
