Alex Harvey, CFA - Senior Portfolio Manager & Investment Strategist
The MSCI All Country World Index (ACWI) recorded a 0.00% return in July but investors would be forgiven for thinking that it had been a quiet month. Korean stocks shed almost one quarter of their value, the Philadelphia Semiconductor one fifth and global momentum stocks almost one tenth. But positive stories elsewhere helped steady the ACWI boat. We came into the second half of 2026 with some healthy gains from risk assets and with a broader dispersion of returns than that which we had become accustomed to, both within individual markets and across geographies and sectors. In many ways this is characteristic of a healthier market and for diversified investors like ourselves this was very much welcome and somewhat overdue. The market continued to oscillate around the on/off Trump Iran war rhetoric, and the second order inflation derivative that falls out from more entrenched higher oil, commodity and shipping costs.
Despite inflation in the US coming in both below May’s reading and expectations, the resurgent war narrative (did it ever go away?) continued to fuel concerns about consumer prices in the future, which in turn led to a steady but significant move higher in rates across developed markets during the month of July. This was largely a resetting higher in real rates with the US 10yr real rate hitting 2.43% at month end and 30yr real yields breaching 3% for the first time since ‘peak GFC’ in October 2008 (they were negative less than 5 years ago). Unsurprisingly, risk markets found this somewhat unsettling and when combined with extended investor positioning some profit taking ensued. In the case of Korea, where the KOSPI index is dominated by SK Hynix and Samsung, the approval by the regulators in late May for leveraged single stock ETFs only added to the market volatility which at one point saw the index 44% lower from its intraday peak on 18th June, leading the finance minister to apologise to the thousands of retail investors nursing heavy losses. July’s final day KOSPI rally of almost 18%, which followed a similar sized fall over the prior three days, translated into an annualised volatility north of 100%, levels rarely seen which probably would have been higher were it not for the circuit breakers that kicked in.
SpaceX continued to see profit taking through the month which eventually pushed it below its IPO price and ultimately end July at ~$108 – more than 50% below its post launch peak, putting a serious dent in founder Elon Musk’s paper net worth (but one he can live with). It is notable that margin debt – borrowing for the purpose of investment – reached a record $1.5trn in the US during the month, something which risks exacerbating market moves in an already volatile market. Shortly after month end, news emerged of a hedge fund called Situational Awareness – a near four times leveraged play into AI related names and infrastructure – being forced into a fire sale of assets to Ken Griffin’s Citadel as heightened volatility triggered margin calls. Despite a less favourable backdrop for tech and AI related names, Bitcoin ended the month 7.5% higher, likely finding some temporary support after the 20% June rout.
Despite there being no changes to the major policy rates during the month, yields edged higher as oil prices rose sharply again in July as the short-lived US-Iran peace plan broke down and hostilities between the sparring nations resumed. As a result, returns on most rate sensitive bonds were modestly negative and the higher carry of corporate credit wasn’t enough to offset the price declines. One other notable move worthy of mention was a sharp move higher in the Yen as speculation swirled again that the Bank of Japan would intervene in the currency market to prop up the weak currency. Ultimately it was a coordinated intervention which also saw the US selling Euros and buying Yen, an unusual move and one probably not welcomed by ECB officials.
We go into August hoping for less volatility but expectant for more of the same. Volatility presents opportunity however, and we remain ready to position portfolios around any adverse market moves where opportunities arise. It has been pleasing to see a broadening out of equity returns as the year has progressed, and some support for quality after a weak and concerning first quarter. Together with a broader asset mix and a strong line up of active managers we should be well positioned for what the remainder of the year brings.
