July 2026
AI loses its shine
July’s headline moves looked unremarkable. The S&P 500 was flat, European equities advanced and oil ended lower. Beneath that, leadership shifted. Investors became less willing to pay almost any price for artificial intelligence and semiconductor exposure, while geopolitics remained an unresolved source of risk rather than the market’s principal concern.
The Middle East rumbled on, with Trump caught in a trap of his own making. Iran remained capable of unsettling energy markets, while Trump revived tariff threats as he sought to reassert his trade agenda. Markets largely absorbed the rhetoric, but uncertainty remained embedded in asset prices even as volatility stayed contained.
The economic backdrop offered few firm conclusions. China’s recovery continued to disappoint, inflation remained stubborn enough to keep central banks cautious, and policymakers gave little indication that interest rates were about to move decisively in either direction. With macroeconomic signals pulling in different directions, attention returned to earnings and valuation.
That proved uncomfortable for technology. For much of the past year, investors had been prepared to overlook valuation in favour of AI’s long-term promise. July suggested a higher bar. Semiconductor shares led the retreat as investors questioned whether extraordinary levels of capital expenditure would produce equally extraordinary returns. South Korea’s KOSPI absorbed much of the selling, with the weakness spreading across Asia. The Nikkei 225 fell 8.1% and the Shanghai Composite lost 5.8%, weighing on emerging markets more broadly through their technology exposure.
Elsewhere, markets were more resilient. The S&P 500 slipped just 0.1%, supported by sectors less exposed to the technology retreat. Europe again outperformed. The FTSE 100 gained 3.5% and the Dax rose 2.5%, helped by a market composition that looked rather more attractive than semiconductor-heavy Asia.
Oil finished the month lower, with Brent down 5.5% and WTI falling 3.1%, although those figures understated the uncertainty that continued to surround the Middle East. Periodic geopolitical concerns continued to unsettle the market before weaker global demand expectations, particularly around China, reasserted themselves. The Bloomberg Commodity Index declined 2.7%.
Precious metals endured a much sharper correction. Gold fell 9.7% and silver 23.8%, giving back part of their earlier gains as higher real yields reduced demand for defensive assets.
Currency markets remained driven largely by interest-rate expectations, while bond markets continued to reflect uncertainty over when central banks might eventually begin easing policy.
Bitcoin was one of the few notable gainers, rising 4.7% despite the more cautious tone elsewhere. Institutional demand continued to provide support, although digital assets remained sensitive to broader changes in liquidity and investor sentiment.