July 2026 Market Commentary

July arrived with the usual collection of reasons for markets to retreat: renewed conflict in the Middle East, oil briefly trading above US$100 per barrel, another round of tariff uncertainty, rising bond yields and growing questions about the size of corporate spending on artificial intelligence. Markets listened politely, absorbed the headlines and, for the most part, carried on. The S&P/TSX Composite gained 1.1% during the month, closing at 35,226 after reaching a record closing level late in July, while the S&P 500 declined a modest 0.1%. Beneath that calm surface, however, the currents were considerably stronger. The Nasdaq fell 3.2% as semiconductor and other high-flying technology shares corrected, while energy, financials and value-oriented companies took a turn at the front of the pack. It was less a market retreat than a change of drivers, a useful reminder that resilience does not always mean everything rises at once.

The loudest storyline in July remained artificial intelligence, although investors began asking a more practical question: when does all this impressive spending become equally impressive profit? Second-quarter earnings highlighted a widening gap between companies converting AI investment into cloud growth and those simply presenting investors with larger capital-expenditure budgets. That distinction contributed to a 3.4% decline in the S&P 500 technology sector and a particularly sharp correction in semiconductor shares. At the same time, the equal-weighted S&P 500 gained 1.0%, seven of the index’s eleven sectors advanced, and energy and financial stocks returned 12.6% and 6.2%, respectively. The market’s message was not that the AI story is finished, but that the cover charge has gone up. Ambition still matters, but cash flow, earnings and execution are once again being checked at the door.

Geopolitics remained the month’s persistent background noise. Renewed U.S.-Iran tensions and uncertainty surrounding the Strait of Hormuz pushed Brent crude briefly above US$100 before it settled near US$90, reigniting inflation concerns and lifting the U.S. 10-year Treasury yield to 4.74%. The Federal Reserve held its policy rate at 3.50% to 3.75%, while the Bank of Canada maintained its overnight rate at 2.25%, balancing near-term inflation pressure against signs that Canadian growth is beginning to improve. Despite the noise, earnings remained healthy, credit markets orderly and major equity indices near record levels. July therefore reinforced a familiar lesson: headlines may control the market’s daily weather, but earnings, balance sheets and economic resilience determine the climate. Consistency rarely makes for dramatic television, but it remains one of the market’s better long-term strategies.

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