WeekWatch

• Concerns about AI valuations and Chinese competition contributed to a 5.8% decline for the US Nasdaq 100 in July. In contrast, Europe’s STOXX 600 ended at a record high, reflecting the region’s more defensive and value-focused opportunities.
• The price of Brent crude oil rose 23% over the month as the US and Iran both hardened their negotiating positions going into the sixth month of war.
• Central banks in the UK, US and Japan kept interest rates on hold. In the US, long-term bond yields rose as investors reacted to the Fed’s new ‘no guidance’ policy.

Earnings season – on course for a(nother) record

US companies are delivering one of the strongest earnings seasons since the post-pandemic bounce in 2021. Multiple sectors are delivering high (20%+) double-digit profit growth compared with 2025. This has been led by energy, buoyed by the 40% rise in the price of oil over the past year. Communication services and technology were also strong contributors, supported by AI-related activities. 

Yet, many household tech names are trading at high valuations and so investor expectations are equally demanding. Companies unable to reassure the market on prospects are being punished as investors sell. Analysts are increasingly concerned about how (and if) the very high levels of expenditure on AI will be rewarded. Despite beating earnings estimates, the share prices of some of the largest tech companies – such as Apple, Meta and Alphabet – fell as investors found fault with aspects of their earnings or strategy. 

AI meltdown in South Korea

South Korea’s benchmark KOSPI stock index rose by a record 18% on the last day of trading in July. Despite this, the index fell by 22% over the month and compared to its June peak, the index is 30% lower. The KOSPI is home to two of the world’s largest AI memory chip manufacturers, Samsung Electronics and SK Hynix. Accounting for about 50% of the value of this index, both companies have underpinned this market’s rise, including its status as the best performing global stock market in 2025.

Two factors have fuelled this market’s more volatile recent performance. The first has been growing concerns about the sustainability of AI-linked spending globally. Highly valued chip manufacturers will be vulnerable if this expenditure slows, disproportionately affecting the South Korean market. A further consideration has been the high retail investor participation in this stock market. Often using borrowed cash, some of these investors have bought into specialist funds which magnify the gains (or losses) of shares or the index. 

Is the Fed confusing markets?

Despite holding interest rates steady last week, the Federal Reserve’s (Fed) new chair Kevin Warsh may have confused investors about the central bank’s interest rate policy. Unlike his predecessors, Warsh wants the Fed to be less communicative with the market. He argues that forward guidance allowed investors to anticipate rate decisions so effectively that market expectations, rather than the Fed itself, increasingly influenced broader financial conditions and the pricing of interest rates.

Yet Warsh’s analogy that markets are learning to “play the ball, not the referee” (i.e. investors need to rely on interpreting economic data and not defer to updates from the Fed) has received a lukewarm response. Critics argue that removing forward guidance creates more uncertainty, pointing to the rise in the 30-year US Treasury yield to near two-decade highs as investors reassess the outlook for inflation, growth and interest rates.

Hetal Mehta, SJP’s Chief Economist says: “Kevin Warsh is struggling to give a clear strategy. He referred to price stability but provided no substance on how he will bring inflation lower.” 

US consumer inflation has been above the 2% target since early 2021. Far from being the dispassionate observer, many argue the Fed is actually the most valuable player. 

FTSE 100 outpaces the S&P 500     

The FTSE 100 ended July within a couple of points of its all-time high of 10,934. During the month it rose by 4% in local currency terms, outperforming the S&P 500 which fell by 1% over the period. The FTSE 100 has also led over the past 12 months, rising by almost 20%. This is ahead of the S&P 500’s 18%, and just ahead of the global MSCI ACWI.

The FTSE’s performance has been achieved despite (and more recently, helped by) little exposure to technology and AI-linked companies. Unlike the more expensively valued and growth-orientated S&P 500, where tech companies comprise about 40% of the index, the top listed companies in the UK include banks, pharmaceuticals, energy, mining and engineering businesses. Investors in the FTSE 100 are benefiting from higher energy prices caused by the Iran war, as well as growing disquiet about the high levels of AI-related expenditure. 

Luxury’s China problem

Two of the luxury sector’s largest companies, Hermes and Kering, the parent company of Gucci, reported earnings on the same day last week. The market’s reaction couldn’t have been more different. Shares in Hermes fell by 11%, while those in Kering rose by 14%. Regarded as the most exclusive luxury sector constituent, Hermes is struggling with slow sales in its core leather goods category, weak demand in China, as well as the slowdown caused by the Iran war. By contrast, Kering’s latest results show it is building on a turnaround plan under new management. 

Yet shares in both companies have delivered negative returns so far this year. Continuing weakness in China for Western products including luxury goods, cars and even sportswear remains a major obstacle, as many consumers rein in purchases or switch to locally designed products. 

Can the new prime minister solve the UK’s social care crisis?

Last week, new prime minister Andy Burnham hinted at tax rises in the autumn to fund social care reform. He specifically pointed to the unfairness of the current system, which can strip vulnerable people of their assets, including their homes, to pay for care.

To address the longstanding issues in social care, Burnham said he will bring forward the planned review of adult social care by one year. The report will now be published next summer (2027) instead of 2028.

In addition to initiating cross-party talks on social care, Burnham has pledged to improve pay for the social care workforce.

House sales slower than usual

The summer slowdown in the UK housing market has been sharper than usual, with Bank of England statistics suggesting homebuyers are putting plans to buy on hold.

While mortgage approvals for house purchases increased to 58,200 in June, up from 56,200 in May, this represents a decline from an average monthly figure of 61,400 over the previous six months. ¹

Factors behind this include higher mortgage rates driven by market uncertainty due to the protracted conflict in the Middle East.

¹Bank of England, Money and credit statistical release – June 2026. Published 29 July 2026