July proved a volatile month for global markets, characterised by a sharp rotation away from high-momentum technology and AI-related stocks toward more defensive, value-oriented sectors. Headline indices finished broadly flat — the MSCI ACWI returned just +0.1% — but this concealed significant divergence beneath the surface. Fixed income also came under pressure as long-term yields rose sharply, while the corporate earnings backdrop remained highly constructive throughout.
Investors began to question whether unprecedented levels of AI-related capital expenditure would generate attractive returns, triggering a sharp sell-off in the market's strongest recent performers. Semiconductors bore the brunt, with the Philadelphia Semiconductor Index falling 20.6% from its June high. The move was amplified by the forced unwinding of leveraged positions in Asia and the United States, though markets stabilised in an orderly fashion toward month end.
The Federal Reserve held rates steady at 3.50–3.75% for the fifth consecutive meeting, with Chair Warsh withdrawing forward guidance and signalling a more uncertain rate environment ahead. Treasuries reacted sharply — the 30-year yield ended the month at 5.27%, its highest level since June 2007. Government bonds and investment grade credit suffered as a result, though high yield and emerging market local currency bonds proved more resilient.
UK equities were the standout developed market performer, with the MSCI UK All Cap returning +3.9%, as defensive sectors and limited technology exposure proved advantageous. US equities were broadly flat to slightly negative, with the Nasdaq falling 3.2% and smaller companies underperforming. European equities were little changed, while Japan saw a sharp divergence — the Nikkei fell 8.3% due to its concentration in export and technology names, while the broader TOPIX was virtually flat.
The Q2 2026 earnings season provided a highly constructive backdrop despite the market turbulence. With around 62% of S&P 500 companies having reported, 86% beat expectations — well ahead of historical averages — making this the strongest season since Q2 2021. Blended year-on-year earnings growth is running at approximately 36%, reinforcing the view that July's correction reflected positioning and valuation dynamics rather than any deterioration in fundamentals.
Alternatives delivered a mixed picture, largely reflecting the impact of higher long-term yields. Infrastructure fell 1.6% as rising discount rates weighed on long-duration real assets, while property held up better at +1.2%. Gold was broadly flat at +0.2%, proving resilient despite the headwind of rising real yields and a stronger dollar.
Umbra's globally diversified positioning acted as a modest headwind in July, having been a tailwind during Q2's rally. Active fund selection was additive: the Arcus Japan holding returned approximately +5% while passive Nikkei 225 exposure fell around -10%, and the Evenlode UK Income allocation rose +5.4% year-to-date. Across all risk levels, Umbra MPS strategies continue to demonstrate strong medium- and longer-term outperformance versus their ARC benchmarks.
