Market Commentary

A strong earnings season offered a glimmer of hope in what has been a year marred by growing global economic unrest. Is the Strait of Hormuz open? What side of the bed did Trump wake up on? Will AI take over the world?

This earnings season saw more than half of the companies in the US S&P 500 and Europe's STOXX index report better-than-expected profits for the latest quarter. These two indices provide a broad measure of how share markets in the US and Europe are doing, and the strong results gave reassurance that many businesses are still strong despite the economic challenges.

AI spending concerns

Technology companies were scrutinised during the month, particularly those big firms investing heavily in artificial intelligence (AI), with questions moving from what roles will be replaced, to how the billions invested will translate into profits.

Not every tech giant is winning the AI race the same way. Meta and Google faced pressure after pouring billions into AI with little clarity on returns. Microsoft and Amazon rose because they showed AI was actually contributing to their bottom lines.

Apple is taking a different path entirely — spending a fraction of what rivals are, partnering with AI providers instead of building everything itself, and using its 2.5 billion active devices as its competitive edge.

Technology stocks were confronted with other headwinds too. Higher bond yields can make shares look less attractive, while concerns that some tech companies may be overvalued encouraged investors to shift some money into more defensive sectors such as healthcare and consumer staples.

Geopolitical tensions

The US-Iran conflict has been a constant background hum of concern for markets, and this went up a notch with the breakdown of the latest peace deal, which meant Brent crude oil briefly rose above $100 a barrel. Concerns also rose again about potential disruptions to shipping through the Strait of Hormuz and the flow-on effects this has on inflation.

This, along with expectations of higher government borrowing to pay for defence spending and ongoing government debt, meant rates on bonds rose sharply too.

Trade tensions popped up again in July as well. US President Donald Trump announced tariffs on a range of imported goods, including products from New Zealand, Australia and the United Kingdom. These additional tariffs could slow global economic growth, increase costs for businesses and put more pressure on international supply chains.

The inflation worry

Central banks around the world are keeping an eye on the US-Iran conflict, amongst other things, and are sticking with their ‘tightening bias’ (leaning towards interest rate increases), as inflation is still out of the comfort zone for many.

Here at home, the Reserve Bank of New Zealand increased the Official Cash Rate to 2.50% as our annual inflation came in at 4.1% in the year to June 2026. The inflation target range is between 1 and 3%. The US Federal Reserve, Bank of England and Reserve Bank of Australia all left their rates as they were, but markets are braced for them to ‘tighten’ further.

Global performance

The UK got their sixth Prime Minister in ten years – Andy Burnham. Calm financial markets indicated they are comfortable he isn’t about to do anything drastic with the national chequebook. Its share market is looking good too, as markets are expecting more defence spending,  business earnings to stay resilient and strong performance from financial and energy companies. As a result, the FTSE 100, which tracks the 100 largest companies listed on the London Stock Exchange, rose 3.5% during the month.

Looking at overall market performance, the US S&P 500 slipped 0.1% in July, while the technology-focused NASDAQ fell 3.5%. Closer to home, Australia's ASX 200 gained 2.3%, and New Zealand's NZX 50 rose 0.6%.