Summary of July Market Analysis
As July 2026 comes to a close, it has proven to be a pivotal month for evaluating the key drivers of asset prices as we transition into the third quarter. The month has witnessed a significant shift in stock market leadership, with previously strong indices experiencing declines. Notably, the Kospi has dropped by 23%, the Shenzen index in China has fallen by 16%, and Japan’s Nikkei has decreased by 9%.
Conversely, European indices have shown resilience, with the FTSE 100 rising by 4% and the Dax and Eurostoxx banking index increasing by 5.71%. This performance indicates a growing investor interest in diversifying away from technology stocks, particularly as European banks have maintained their gains despite the sell-off in other sectors.
In the U.S., the Nasdaq composite index has only seen a 2% decline this month, while the Nasdaq 100 has dropped by 5%. The telecommunications and semiconductor sectors have been particularly weak, with declines of 19% and 18%, respectively. A significant recovery in U.S. tech stocks on a Thursday prevented these indices from entering bear market territory, suggesting a potential rebound in the tech sector.
Key Insights Moving into August
- AI Trade Dynamics: The AI trade appears to be regaining momentum, with a potential shift in leadership from chip stocks to hyperscalers that have demonstrated the ability to monetize their AI investments. Companies like Microsoft are showing signs of resurgence, indicating a possible comeback for hyperscalers.
- Earnings Season Impact: The upcoming earnings reports, including those from significant players like SpaceX, are expected to influence market sentiment. While European indices have reached record highs, the focus on U.S. earnings could lead to a resurgence in U.S. tech stocks.
Market Performance Overview
From a technical standpoint, the Nasdaq 100 is currently positioned above its 200-day simple moving average (SMA) support at 26,690, with the next resistance level at the 50-day SMA of 29,590. Momentum indicators are trending positively, although the MACD has not yet reached oversold levels.
European equities have shown remarkable strength despite rising Brent crude oil prices, which have increased by 20% over the past month. Central bankers remain vigilant regarding inflation risks, yet the moderate oil price levels have allowed European corporates to absorb these costs without significant distress.
Earnings Season Roundup
Europe:
The Eurostoxx 600 has reported earnings that exceed expectations, with a headline EPS growth of 17%, surpassing the anticipated 11%. However, excluding energy stocks, the growth rate is a modest 7%, raising concerns about the sustainability of earnings growth as more companies report.
U.S.:
The S&P 500 has experienced impressive earnings growth of 37% year-over-year, marking the fastest growth since Q3 2021. Even when excluding Alphabet's strong performance, the growth rate remains a robust 25%. This trend suggests that U.S. stocks may outperform as we progress through Q3.
In conclusion, July has set the stage for potential shifts in market dynamics, with European stocks showing resilience and U.S. tech stocks poised for a possible comeback as earnings reports unfold.