July Market Update: A Loud Month, a Quiet Market

July gave investors plenty to think about.

Geopolitical tensions flared again in the Middle East. AI stocks pulled back after a strong start to the year. And the Federal Reserve had another rate decision to make.

Yet when the month was over, the market had barely moved.

The S&P 500 returned -0.1%.

Beneath that flat headline, though, there was quite a bit going on. Energy led every sector with a +12.6% return as geopolitical tensions pushed oil prices higher. Financials followed at +6.2%. The more defensive corners of the market held up well too, with Real Estate (+2.5%), Health Care (+2.4%), and Consumer Staples (+2.1%) all gaining ground.

Technology was the outlier. The sector fell -3.4% as AI stocks gave back some of the gains they’d built up earlier in the year.

Bonds had a tougher month.

The U.S. Aggregate Bond Index returned -1.3% as Treasury yields moved higher. The culprit was familiar: rising oil prices, tied to the renewed U.S.-Iran conflict, brought inflation concerns back to the surface. Investment-grade corporate bonds lagged with a -1.5% return, while high-yield corporates held up a bit better at -0.3%.

Overseas, the picture was mixed. Developed international markets gained +2.0% and outperformed the S&P 500. Emerging markets went the other way, returning -3.0%, as the same U.S. tech selloff weighed on South Korean stocks.

Markets Turn Back to the Middle East as Tensions Resurface

The ceasefire from earlier this spring didn’t hold.

Renewed conflict between the U.S. and Iran brought back the same headlines and the same concerns we saw earlier in the year. Once again, uncertainty around the Strait of Hormuz raised the risk of reduced oil supply. Late in the month, there were signs of another round of de-escalation, but the situation remains fluid.

This matters for the same reason it did the first time around.

After all, energy prices feed directly into inflation. And inflation, in turn, shapes what the Federal Reserve decides to do next.

In July, the Fed held interest rates steady for the fifth consecutive meeting. But it wasn’t a unanimous call. A handful of officials pushed for a +0.25% rate hike, pointing to the renewed inflation risk.

If this feels familiar, that’s because it is.

We’ve now moved through this same cycle several times this year. Conflict escalates. Oil prices rise. Tensions ease. And then the pattern repeats. The specific headlines shift from week to week, but the market has absorbed this same shock more than once.

The Fed’s split decision reflects that uncertainty. Officials are debating their next move, but for now they’re choosing to gather more information rather than react to the latest headline.

And here’s the part worth remembering: despite all the noise, the net impact on markets has been limited. Stocks rebounded from the March selloff, and the S&P 500 has returned nearly +10% this year.

AI Stocks Trade Lower as Investors Shift Focus from Growth to Discipline

Second-quarter earnings season kicked off in July, and the biggest names in AI all reported: Alphabet, Microsoft, Meta, Apple, and Amazon.

These are the companies pouring money into data centers and the other infrastructure needed to power artificial intelligence. This quarter, they laid out their forecasts and their spending plans.

Something had changed in how investors received them.

For the past two years, the AI conversation was all about scale. How much are these companies spending? How fast are they building? How big could the opportunity get? This quarter, the focus shifted to a different question: profitability and return on investment.

In plain English, investors started pushing back on the spending.

Companies whose investments are clearly translating into growth, like Microsoft’s cloud business, were rewarded. Companies whose spending has outpaced their cash flow, or started to weigh on profit margins, saw their stocks move lower.

The market is no longer content to reward growth and big spending numbers on their own. It’s asking a harder question: is the spending actually profitable, or are expenses climbing faster than revenue?

This is a healthy development.

Every major technological buildout eventually reaches a point where investors stop rewarding growth for its own sake and start looking for results to match. July was the month that question arrived for AI.

As that scrutiny set in, semiconductor stocks and other parts of the AI trade gave back some of their earlier gains, with investors questioning whether the current pace of spending could last.

But it’s worth keeping the pullback in perspective.

The volatility stayed relatively contained. For instance, the equal-weight S&P 500, a proxy for the average S&P 500 stock, set a new all-time high late in the month, and seven of the eleven sectors finished higher. Credit spreads, which measure how worried the market is about credit risk, widened only modestly and remain very tight by historical standards. And even after the pullback, semiconductor stocks are still up nearly +60% for the year.

As for the companies doing the spending? They’re forecasting even higher spending levels in the quarters ahead.

What This Means for Investors

July was a busy month that, on the surface, went almost nowhere.

Geopolitical tension returned. AI leadership wobbled. The Fed stood pat, but not without disagreement. And through all of it, the S&P 500 finished essentially flat.

That’s a useful reminder.

A lot can happen in a month without much of it showing up in your account balance. The headlines were loud, but the market’s response was measured, and in some ways more disciplined than it’s been in a while.

That discipline is the theme worth holding onto. Whether it’s a geopolitical shock the market has already learned to absorb, or a shift toward asking harder questions about AI spending, the through-line is the same. Markets are starting to separate noise from results.

For long-term investors, that’s not something to fear. It’s something to build around.