Markets cool following Q2
Equity markets were mixed in July following a strong second quarter. The S&P 500 was roughly flat, down about 0.1%. The Nasdaq fell 3.2% for a second straight month as investors grew more selective on AI and semiconductor valuations. The Dow rose 0.3% to 0.4%. Small caps, after leading much of the first half, also declined and were among July’s weakest pockets.

Value and dividend-oriented stocks held up better. The equal-weighted S&P 500 gained about 1.0%, outperforming the Nasdaq-100 by the widest margin on record for a single month. The CBOE Volatility Index closed the month at 15.99, well below the 20-level considered stable. Volatility still spiked into the high 20s in mid-July as the Iran conflict flared again, but eased as fears didn’t materialize and the Fed meeting passed without any surprises. As we’ve noted before, markets can perform well even in higher-volatility environments,
and July was a case in point.

Per the Bloomberg U.S. Aggregate Bond Index, fixed-income markets posted modest negative returns. The 10-year Treasury yield climbed to roughly 4.7%–4.75% by month-end, its highest since January 2025; the 30-year pushed above 5.2%, its highest since 2007. Rising yields reflected elevated oil prices, sticky inflation, and a more hawkish Fed tone.

Iran conflict resumes, oil stays volatile
Hostilities between the U.S. and Iran resumed July 8, breaking the ceasefire that had briefly stabilized oil markets. Brent crude oil swung between roughly $75 and $90 a barrel as headlines alternated between fear of conflict and hope for diplomacy. The full economic impact remains hard to gauge, but oil is likely to stay volatile and complicate the inflation picture.

Economic data
The labor market cooled over the summer. June job additions were revised down from 57,000 to 20,000. On Aug. 7, the Bureau of Labor Statistics reported nonfarm payrolls unexpectedly fell by 23,000 in July, far below the 80,000 gain expected. May and June were also revised down by a combined 103,000. Unemployment still ticked down to 4.1% from 4.2%, aided by a declining labor force participation rate of 61.4%.

The BLS released its July Consumer Price Index on Aug. 12. Headline CPI rose 0.1% for the month and 3.4% year-over-year, down slightly from June’s 3.5%. Core CPI rose 0.2% for the month and 2.5% year-over-year, its lowest annual rate in five months. Despite easing somewhat, energy prices remain well above last year’s levels due to the Iran conflict.

In July, the Fed held rates steady at 3.5%–3.75% for a fifth consecutive meeting. Three regional Fed presidents favored a hike, reflecting a more divided committee under Chair Kevin Warsh, who has emphasized “no tolerance” for elevated inflation and reduced forward guidance. This is a shift from earlier in the year when markets expected additional cuts; some investors are pricing in a possible hike later this year. The Fed’s next meeting is Sept. 15–16.

Q2 earnings deliver strong growth
With most S&P 500 companies reporting Q2 results, blended year-over-year earnings growth is near 50%, one of the strongest quarterly rates in more than two decades. The vast majority of companies have beaten both earnings and revenue estimates.

The Magnificent Seven hyperscalers (Microsoft, Alphabet, Amazon, and others) continued guiding toward a combined $720–$745 billion in AI infrastructure spending. Investors worried that the substantial increase in capex wasn’t translating into near-term revenue, triggering a temporary sell-off in semiconductor and AI-related shares. Strong earnings in late July reversed the slide.

Bottom line
Supported by strong Q2 earnings, the S&P 500 and Dow pushed to new record highs in early August. But the path hasn’t been smooth, and we expect turbulence ahead. The Fed’s increasingly hawkish tone is a new consideration for markets. The Iran conflict and affected oil prices are unresolved wildcards. In addition, midterm elections have historically contributed to volatility.

Our 2026 outlook remains positive due to a wide spectrum of investment opportunities. We continue to expand into underappreciated assets and private markets. July’s shift toward value, dividend-oriented, and equal-weighted strategies supports our view that market leadership is broadening beyond the largest tech names, and we expect that trend to continue.

Current market valuation stands at roughly 20 times forward earnings, modestly above the 10-year average. The economy has given signs of cooling, particularly in labor, but corporate earnings and profitability show resilience. Leading U.S. companies are well managed, profitable, and innovative.