Well, equity markets around the world performed well again in July, continuing the strength we’ve seen in the last couple of months. 

There were record highs experienced in several of the major markets, and the backdrop was one of fairly robust corporate earnings, so corporate profitability, and the continuation of easing trade tensions.

A key political development was of course the passage of the so-called One Beautiful Bill Act in the United States, which while contentious to some seemed to provide more clarity regarding the future policy backdrop in America and supported a risk on stance in markets. Trade agreements were reached with countries such as Vietnam, Japan, and the European Union.

The tariffs agreed were of course higher than before President Trump took office. The market seems to prefer this to the risk of an ongoing trade war – better the devil you know, so to speak.

It’s worth noting though that some major emerging countries have yet to agree a trade deal with the US, most notably India, Brazil, and Taiwan. Nonetheless, emerging markets did outperform developed markets in July led by South Korean and Chinese equities.

Chinese equities were helped by the Chinese economy showing some signs of resilience with better-than-expected economic activity indicators and an increased sense of optimism around artificial intelligence related stocks. Taiwanese equities also benefited from that theme.

In developed markets, UK equities led the way in local currency terms benefiting from upward revisions to earnings estimates for energy and materials companies, which as we know are a meaningful component of the commodity heavy FSTE 100 Index. Oil prices rose over the month which of course didn’t hurt either.

In the US, the world’s largest stock market or certainly its most liquid, returns were also among the strongest of the major markets, helped by strong second quarter earnings announcements. 

Around 80% of the S&P 500 companies that had reported by the end of July had beaten consensus earnings and revenue growth expectations. Admittedly those were depressed in advance. The Magnificent Seven and technology stocks generally were the leaders in that regard.

Nvidia became the first ever $4 trillion company, which is quite remarkable. I remember when Apple became the first trillion-dollar company back in 2018, and if somebody told me then that there’d be nine of them today and that one of them would be 4 trillion and some others not far off it, I’m not sure I would have believed that.

European equities were the outlier, I would say, of the major developed equity regions. They were essentially flat over the month on concerns over demand from emerging markets and of course ongoing trade worries, which is probably unsurprising given that no deal was done with the EU until the very end of the month of July.

Overall, when we look at the equity markets, global equities delivered around 1.4% return in local currency terms, but one key dynamic in markets this month was a weakening sterling, which fell nearly 4% against the US dollar. That’s quite a move in currency markets. That meant the returns from unhedged assets like US and European equities were higher in sterling terms than they were in local terms.

So that 1.4% from global equities in US dollar terms was actually a 5.1% return from global equities for a sterling-based investor that hadn’t hedged their currency.

In fixed income markets, returns were muted and lagged equities. Higher risk bonds like emerging market debt and high yield credit were the better performers, with high quality investment grade bonds generally lagging. 

So, government bond yields generally increased in July with the US, UK, German, and Japanese 10-year yields moving higher. In fact, the Japanese 10-year bonds reach a 17 year high during the month in terms of yields. 

So, in performance terms, global government bonds as an overall asset class over the month were down around 0.2% and investment grade corporate bonds were up around 0.3%. So just flat really.  High yield corporate bonds and emerging market debt were a little better, up around 0.9%, so just under one percent for the month.

In terms of monetary policy, the wait and see approach of central banks has continued with the US Federal Reserve, the Bank of Japan, and the European Central Bank, all keeping their rates unchanged.

The Bank of England, of course, has just announced their decision of a 25-basis point cut, which the market had expected and priced in.

US Treasury Secretary, Scott Bessent, who incidentally ruled himself out of being the next Fed Chair, stated that they aim to get trade deals wrapped up by Labor Day, which is the 1st of September. That means that it’s likely to be a busy August.

There’ll also be some economic releases on things like inflation, employment, industrial production, and manufacturing for the market to digest during this month which will no doubt add to the investment ‘noise’. 

It is expected that volatility will remain elevated over the medium term, but I hope that we of course, have a more traditional peaceful summer. 

Given the level of uncertainty in markets and high valuations in equities, I think having a well-diversified portfolio and crucially the tools within that to adapt to changing conditions is going to be a must.

Kind regards,

iPensions Wealth Team

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