July was an eventful and volatile month for capital markets, with investors forced to digest a slew of headlines, events, and developments, each seeming to come with increased market-moving potential. There were enough data points and notable occurrences to fill an entire quarter, all packed into a single summer month. Chief among them: re-escalation of geopolitical tension, surging oil prices, the SK Hynix NASDAQ listing, Apple briefly surpassing Nvidia to become the most valuable company in the world, mixed earnings results in the AI sector and an interest rate decision leaving us with more questions than answers. Phew! Drama seemed to lurk at every turn and with each new headline. Markets gyrated and swung widely. To simply say it was a busy month would be an excessive understatement. So much for summer doldrums.
Asset and style divergence was a key theme in July. In recent periods, the market has continued to make new highs thanks to the stellar performance of a small group of companies, mostly concentrated in the technology sector. However, as the month unfolded and earnings results within AI / technology were mixed, we saw major shifts in both performance and market leadership. The NASDAQ 100, an index which is “top heavy” with technology holdings, fell approximately 7% in July as the market absorbed earnings and rerated prices of those names showing clear evidence of revenue growth and measurable returns on staggering levels of AI spending. Examples of reporting companies in this category include Amazon and Microsoft, which were rewarded as results validated their investments. Other companies such as Meta were not so fortunate, as earnings came in soft and future CAPEX estimates were raised. The key takeaway is that technology and the “Mag 7” stocks are no longer moving as one – or leading the market – and investors are becoming more discerning about which companies continue to deserve lofty valuations.
However, as technology stocks floundered, other styles and asset classes rose up to take the lead. While tech and AI continue to be long-term driving themes, investors are increasingly emphasizing more reasonably valued and less stretched areas of the market. From a sector perspective, this equated to financials emerging as one of the strongest sectors in July, benefitting from strong earnings but also perceived tailwinds from a “higher for longer” interest rate environment. Industrials and healthcare also saw renewed investor interest as technology leadership narrowed. Looking at styles, we saw value dramatically outperform growth, with the value index up nearly 4% in July while the growth index fell almost 5%. The spread between the two categories now stands at an impressive 20.35% for 2026, one of the most pronounced performance differentials in years. This exemplifies one of the defining themes of 2026: the deep and persistent rotation away from growth and into value.
Outside of equities, we saw hesitation and lack of direction in rates and fixed income. Although July inflation data came in softer than expected, market prices across the economy remain elevated. Sticky inflation, which has been our constant companion for the better part of three years, remains well north of the Fed’s long-term target, all but slamming the door on the possibility of future interest rate reductions. To that end, in July the Federal Reserve held its regularly scheduled meeting. With inflation hawk Kevin Warsh now a couple of months into his tenure as Chair, the committee elected to hold interest rates steady, which came as no surprise to the market. In its official statement proclaiming the decision, the central bank affirmed its cautious, data-driven approach to monetary policy. The bond market looked quickly past this news and instead focused on resumption of hostilities in the middle east and the resulting oil price spike. Yields shot upward, and bond prices sagged as a result. The Bloomberg Aggregate Bond index, a common proxy for the overall market, fell -1.3% during the month and now sits in negative territory through the first seven months of the year.
The mixed month and its associated volatility have provided an excellent reminder of diversification and its benefits in the world of investable portfolios. The tried-and-true principles of maintaining a “little in a lot” or having the eggs spread across many different baskets remain steadfast considering the ongoing rotation in market leadership. As the baton is being passed from tech and the Mag 7 to value stocks, small caps, and other sectors, portfolios that maintain allocations to these new leaders have benefited accordingly. As it becomes more apparent that the AI-led bull market is unlikely to continue unabated, portfolios that are well diversified across asset classes, styles, and capitalizations may stand to benefit disproportionately relative to more concentrated, less diverse portfolios. As ever, our investment philosophy remains grounded in such principles, and client portfolios reflect that thinking accordingly.
We hope you have a wonderful August and balance of summer. We wish you the best and thank you for the support you continue to provide our firm.
Sincerely,
Jason D. Edinger, CFA
Chief Investment Officer
Altara Wealth
This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation. Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved.