Market Commentary: 7 July 2026

Rotation Underway?

• Stock markets (MSCI World Index) have gained 11% year-to-date.
• Bond markets (Bloomberg Global Aggregate Index) remain flat for the year.

Please note that the content of this review should not be considered as investment advice or any form of recommendation. If you require investment advice, please do not hesitate to get in touch with a member of our qualified team.

Key Themes

Stocks have continued to move higher, but not in a uniform way. The gap between winning and losing markets, sectors and individual stocks has been larger than usual this year. The war in Iran also caused a significant shift in market conditions, which is only now fully unwinding. Central bank interest rate policy remains uncertain in the short-term. However, the environment for stocks remains positive on the whole, while the outlook for bonds is improving.

UK

British and European stocks have been among the best performers over the past month, as the tech trade has taken a breather. The easing of the Iranian conflict has also helped, as both regions rely on imported energy. It appears that overseas investors are finally warming to the UK again, placing more money into UK equity funds this year than in any year since the Brexit vote in 2016.¹  Among the recent winners are Halfords, which is up 80% in three months due to improved trading, and Easyjet, which has gained 55% after receiving a takeover approach from a US investment company.²

United States

The FTSE All World Technology Index has declined by almost 5% in the past month, which has caused US stocks to underperform other regions. Some steam is coming out of the “AI trade”, which dominated returns in H1 when several hardware stocks multiplied in value.  Unbeknown to many, the Magnificent 7 tech stocks have been underperforming the S&P 500 since November.

New leadership has emerged from an unlikely source, with the global healthcare sector rising 11% last month, having lagged the wider market for several years. The old covid stock Moderna had lost 90% of its value since 2021, but has now trebled this year due to fresh optimism about its potential flu and cancer vaccines.³

Europe

The EuroStoxx 50 has slightly outperformed the FTSE 100 over the past month (5% vs 3.5%). Bayer AG, the German conglomerate that owns Roundup weedkiller, was the top performer. It gained 45% after the US Supreme Court agreed there was no need to include a cancer warning on its labels, despite claims that its key ingredient glyphosate could be carcinogenic. The company has already spent $10 billion defending against such allegations, and could have faced a further 65,000 lawsuits in the US alone if the Supreme Court had found against it.^4,5

Asia & Emerging Markets

The performance of emerging market stocks continues to be extremely bifurcated. South Korea and Taiwan have been the big winners, rising 80% and 65% respectively so far this year, but this has been driven by a small number of hardware companies which have benefited from the AI spending bubble. In contrast, India has declined 5%, damaged by the threat that AI poses to its computer services industry.⁶  Meanwhile, Hong Kong has dropped 9% as Chinese tech firms such as Alibaba and Tencent have fallen out of favour.

Bonds

The UK’s 5-year gilt yield, which is a key influence on 5-year fixed mortgage rates, has declined from 4.7% to 4.3% in the past month. Such a reduction is useful, both for the government and homebuyers, but rates remain stubbornly higher than the sub-4% level that existed prior to the Iran war. Gilts have shown very little reaction to the prospect of Andy Burnham becoming Prime Minister, despite his more left-leaning spending policies. Ed Miliband is currently the bookies’ favourite to be Chancellor, although many investors have been unimpressed by his performance as Energy Secretary.^7,8  

Points of Interest

The price of oil has returned to precisely the same level as 27 February, the day before President Trump decided to bomb Iran. At $72 per barrel, Brent crude has quickly shrugged off its 70% price spike, demonstrating the efficiency of modern energy markets. The trading desks of BP and Shell may have made bumper profits due to the volatility,⁹ but sustainably lower energy prices would provide a much-needed boost to the UK economy.

Summary

There is a sense of change within financial markets at present. The AI trade acted as a thunderous bandwagon in H1, capturing huge capital inflows and  undoubtedly creating many millionaires along the way. The volatility of those stocks has increased markedly in recent weeks, leaving an impression that early investors are taking profits and new investors are becoming harder to find. However, companies are reporting good results across the board, and if bond yields do decline it would provide a very nice tailwind for cyclical sectors. When rotational shifts are underway, it usually pays to be diversified.

Note: Past Performance Is Not A Reliable Indicator Of Future Performance.

Sources may be found online here, or provided on request.