Investment environment overview 07/2026

Whatever relief markets drew from June’s U.S.-Iran peace deal proved short lived. The truce collapsed on 8 July, and by mid-month Brent, which opened the month at a four-month low of USD 71.57, touched nearly USD 101 on July 23 before a late-month pause in strikes pulled it back to around USD 88, its strongest month since March. Yet the epicenter of July’s market drama lay not in the Gulf but in Seoul, where the memory concentration risk we have already flagged finally crystallized: the KOSPI suffered its worst monthsince the 1997 Asian financial crisis, before staging the largest single day rally in its history on the final trading day.

The S&P 500 finished the month essentially flat at 0.1%, the Nasdaq Composite fell 2.6% due to the AI trade, while the Dow eked out a 0.3% gain, its fourth consecutive winning month. Europe again proved the quiet outperformer: carried by a solid earnings season, the STOXX 600 gained 1.5% and touched a record high on July 31 to secure a fourth straight monthly gain.

Korea pays the price of concentration

The Korean market, structurally “bipolar” with Samsung Electronics and SK Hynix at roughly half the KOSPI’s value, became July’s defining story. Record margin balances concentrated in the very names falling fastest turned correction into rout, with more than 1.2m leveraged accounts (roughly 1 in 30 Korean adults) hit by margin calls and the Bank of Korea’s first rate hike since 2023, on 16 July, tightening liquidity into the forced selling. Only in the final week, the index already 27% below its June peak, did Chinese DUV lithography production and CXMT’s Shanghai IPO challenge the assumption of Korean memory dominance, driving a capitulation that tripped circuit breakers on consecutive days for the first time in the index’s history and left the KOSPI down 22.2% for the month. However, after Microsoft and Amazon confirmed AI infrastructure demand remains structurally undersupplied, the index surged a record 17.9%, with SK Hynix hitting its 30% daily limit. Notably, fundamentals never confirmed the panic as Korean chip exports surged 179% YoY to USD 41b in July.

Japan catches Korea’s cold

Tokyo suffered a milder strain of the same virus. With AI and semiconductor heavyweights having dominated the index’s advance through June, Japan could not sidestep the unwind even with a weakening yen at its back: the Nikkei fell roughly 8.7%, its first monthly loss in five months, after touching record highs near 72,000. The heaviest casualty was memory chip maker Kioxia, which collapsed 48% to less than half its June peak.

The BoJ held its policy rate at 1%, its highest since 1995, but the real action was in the currency. The yen had slid to 164 per dollar, a 40-year low and its weakest since 1986, before Tokyo mounted an estimated JPY 8.45t of yen-buying on July 30, likely the largest single-day intervention in its history, came with rare public backing from Washington, where Treasury Secretary Bessent called the yen “very undervalued”.

Earnings keep the AI story alive

By month-end, 61% of S&P 500 companies had reported Q2 results: 86% beat EPS estimates, the highest share since Q2 2021, while 77% topped revenue forecasts on top-line growth of about 14%. Headline blended earnings growth of 47.4% YoY flatters reality, inflated by Alphabet’s one-off USD 98b gain; excluding it and Amazon (USD 53b), growth falls to a still remarkable 28.8%, a seventh consecutive quarter of double digit gains.

Microsoft jumped 16% on Azure’s results, Amazon surged over 15% on AWS growth even at some USD 220b in CapEx, while Meta fell 9% on the cash flow cost of its spending and Apple lost 7% on chip shortages. In Europe, roughly half of early STOXX 600 reporters beat estimates, with EPS growth near 18% YoY.

Holding rates, hardening tone

While equities obsessed over chips, July’s more consequential repricing may have happened in Treasuries. The 30-year yield spiked to 5.25%, its highest since 2007, and the 10-year pushed past 4.7%. Both the Fed and the ECB held, and neither felt dovish: the FOMC kept its range at 3.50-3.75% on a 9-3 vote, with three dissenters preferring an immediate hike, the first such split since 2016, while the ECB, after June’s 25bp pivot back to tightening, held at 2.25% on July 23 with a September 10 hike all but promised. As of month-end, markets priced roughly 60% odds of a September Fed hike and a near fully priced ECB move to 2.50%.