July Market Update: Earnings, Inflation & the Fed
July Market Commentary
July was a mixed month for financial markets. U.S. equities gave back a portion of their strong gains from earlier in the year, while developed and emerging international stocks posted modest gains. Bond prices also declined as Treasury yields moved higher during the month. Despite July’s modest pullback, 2026 has remained a strong year for diversified investors.
Market Snapshot (July 31, 2026)
Corporate Earnings Continue to Support Markets
One of the primary reasons markets have remained resilient this year has been the continued strength of corporate earnings. As second-quarter earnings season has progressed, many companies have reported results that exceeded analysts’ expectations, demonstrating that businesses have generally continued to grow profits despite moderating economic growth and higher interest rates.
While markets often react to economic headlines in the short term, long-term investment returns are ultimately driven by the ability of businesses to increase their earnings over time. Healthy corporate profits have provided an important foundation for equity markets, helping offset concerns surrounding inflation, interest rates, and geopolitical uncertainty.
Inflation Improves, but the Fed Remains Cautious
Inflation provided some encouraging news during July. The latest Consumer Price Index (CPI) report showed prices increased 3.5% over the previous 12 months, down from 4.2% the prior month, while core inflation, which excludes food and energy, slowed to 2.6% from 2.9%. Although some of the improvement reflected lower energy prices, the report suggested inflationary pressures may be beginning to ease after reaccelerating earlier this year. Even so, inflation remains above the Federal Reserve’s long-term 2% objective, and policymakers continue to monitor whether this improvement will prove sustainable.
At its July meeting, the Federal Reserve voted to leave its target interest rate unchanged. The decision, however, was not unanimous. Three voting members of the Federal Open Market Committee dissented in favor of increasing the federal funds rate by an additional 0.25%, citing concerns that inflation remains above the Fed’s target and that continued strength in the labor market could keep inflationary pressures elevated. While the majority of policymakers favored waiting for additional economic data before making further policy adjustments, the split vote reinforced that opinions within the Committee remain divided regarding the appropriate path for interest rates.
Treasury yields moved higher following the meeting as investors adjusted expectations that interest rates may remain elevated for longer. Because bond prices generally move inversely to interest rates, most fixed-income sectors posted modest losses during the month.
Diversification Continues to Reward Long-Term Investors
Although U.S. large-cap stocks have returned nearly 10% year-to-date, other areas of the market have delivered even stronger results. Mid-cap and small-cap stocks have gained approximately 15% and 22%, respectively, while developed international stocks have returned more than 14% this year. Rather than relying on a relatively small group of large technology companies, market gains have become more broadly distributed across company sizes and geographic regions.
This year’s performance serves as a timely reminder that market leadership changes over time, often with little warning. Maintaining exposure to a globally diversified portfolio allows investors to participate in these shifts without attempting to predict which asset class or region will outperform next.
Final Thoughts - Staying Focused on What We Can Control
While monthly market movements often dominate the headlines, successful investing is built on long-term discipline rather than short-term forecasts. Our investment philosophy remains centered on globally diversified portfolios, minimizing investment costs, tax-efficient portfolio management, and comprehensive financial planning.
Although market conditions will inevitably change, these are the factors that remain within our control and can have a meaningful impact on long-term financial outcomes. Rather than reacting to short-term volatility, we believe maintaining a disciplined investment strategy, periodically rebalancing portfolios when appropriate, and staying focused on long-term financial goals provides the strongest foundation for investment success.
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