Insights
Market Review for July 2026
Moderate markets: Amid global chaos, world financial markets had a mixed month.
AI rollercoaster: Volatility and speculation rocked the so-called ‘AI trade’.
US vs Iran: Ceasefire shattered, oil price soared, and no clear end in sight.
The Yen yelped: Japanese currency dropped before US rode to the rescue.
Europe burned: A punishing heatwave showed no signs of letting up.
NZ interest rates bumped: the Reserve Bank cautiously responded to price pressure with a quarter-percent rise.
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For all the global drama, disruption, and turmoil that you may have seen in the news during July, it was actually a moderate month for financial markets (and therefore investors). US shares moved slightly lower, Europe was flat, while New Zealand and Australian share markets gained moderately and the NZ dollar began to rebound.
It was a welcome reminder of why investors shouldn’t allow their decision-making to be excessively influenced by negative headlines.
All aboard the AI rollercoaster
In one of the biggest stories of the month, there was more volatility in equity markets when some investors temporarily lost faith in parts of the so-called “AI-trade”.
Things kicked off when the world’s second-largest chipmaker – SK Hynix – missed its forecasted profit (1). Some investors read it as a sign of a broader malaise in the AI space, triggering a rapid market sell-off. A fair share of the price damage was done by crowds of everyday Korean investors chasing returns in a speculative surge, then losing their nerve when prices turned downward (1).
The global investor mood has improved in part after some of the world’s biggest tech firms published their own financial results, helping to paint a healthier picture. Strong company results continue to underpin confidence, but companies increasingly need to exceed already high expectations to sustain further share price gains. Hype only goes so far investors are looking for a revenue payoff now (2).
For as long as the AI space remains vulnerable to speculation and ‘unknowns’, and reliant on massive debt to help it grow, associated stocks will be prone to volatility. Some companies active in AI are more resilient than others, and those with strong existing customer bases have the advantage.
Middle Eastern conflict
Let’s move now to the Middle East where US foreign policy played a prominent role last month.
Trump’s decision to restart the bombing of Iran saw Iran move quickly to close and control the Strait of Hormuz – which you’ll recall from our earlier articles is one of the world’s busiest shipping lanes.
The tactical decision to choke off this supply route, coupled with the ongoing instability in the region, once again sent the price of oil soaring. This in turn, added concerns about inflation – and therefore the potential for higher interest rates to tame it – back into global investor conversations.
From an ethical investor perspective, we don’t support warfare, and economic conditions are more favourable when supply routes are frictionless. It’s also useful to keep in mind that the interconnectivity of the global economy means that regional issues can quickly become global issues. Therefore, the sooner the Middle East can return to some semblance of peace, the better for everyone.
In the bigger picture, the economic choke-power still on display along key fossil fuel supply routes simply underscores how desirable it is to diversify away from reliance on hydrocarbons for energy, and to accelerate the transition toward sustainable energy sources.
Yen yelps, US helps
Last month saw dramatic events in Japan but this time linked to the country’s currency, the Yen, which accelerated this year’s decline in value. Yen depreciation has been long-standing, but the July drop was triggered by Japan’s Prime Minister pledging to honour her commitment to cut taxes. Specifically, planned tax cuts to food and drink that triggered an allergic reaction by currency investors in July (3).
Why? In simple terms, it was because lower tax receipts (as a result of the cuts) would mean less money flowing into the government’s coffers. But at the same time, the rising cost of oil, among other things, is making life more expensive and constraining consumer spending. The Japanese Government has high outgoings due to the ageing population and subsidising fuel among other items. When you put those conditions together, public finances are very strained. And as a result, the country’s currency lost some more of its shine.
In the end, the US Treasury staged an historic intervention and bulk-bought the Yen, which restored order in the short-term. However, many remain sceptical that the Japanese currency has bottomed.
Climate crisis on full display in Europe
Regular readers of these updates will have seen that we’ve covered the heatwave in Europe for the last two months. Before July, over 1,000 excess deaths in the region had already been attributed to record summer heat during what is currently the summer season (4). Unfortunately, in July, the unrelenting heatwave was not broken, with droughts even affecting the normally damp United Kingdom (5).
Widespread wildfires in the region scorched the earth and forced an estimated 300,000 people from their homes in France and Spain (6). The ecological damage is extremely worrying, with wildfires in the UK threatening bird and insect species as well as native forests rarer than rainforest (7).
Summer 2026 will go down in European history for the wrong reasons. From an investor perspective, in our view it strengthens the case of responsible and ethical investing where climate considerations are a factor. But it also highlights where economic fragility may increasingly start to appear in the region.
If Europe keeps having brutal summers like this, it will be hard for all sorts of components of the economy to carry on as normal. The damage to productivity levels and supply chains, for example, is starting to emerge.
Europe has been in the lead, policy-wise, in attempting to lower global reliance on burning fossil fuels, so the experience of these blistering summers seems to have united the EU’s citizens and governments more deeply, in accepting the urgency of trying to slow climate change.
Such consensus on climate is welcome, and all the more necessary at a time when some other countries have deemed the problem “too hard to tackle” and backed away from any action plans.
Finally, here at home in New Zealand, persistent domestic inflation pressures and growing confidence that the economic recovery is becoming more established led the Reserve Bank to lift interest rates a quarter-percentage at the start of July point. Activity indicators point to a gradual improvement in economic conditions. After a long period of stimulating the economy, the Reserve Bank’s monetary policy is set to move more toward neutral – neither slowing, nor priming activity.
It will now become more of a political question, whether some NZ sectors will be prioritised for assistance. In place of supporting the whole economic landscape via historically low borrowing rates.
What this means for your money
July provided a stark reminder of why our sustainable investing approach is critical. The vulnerability of both the supplies of oil through the global refining chain, and the fragility of the environment to damage in both natural resources and people’s lives from a heating planet were both on plain show during the month. It is good to know that your investments are not relying for returns on shortages or price spikes in fossil fuels, or on short-term attempts to stave off the effects of climate change. Serious shifts in investments are required, as the world tries to balance the profit motive with natural and man-made limits to industrial growth. We steer your assets according to Pathfinder’s strong principles, which means that your money is supporting the lights at the end of the tunnel and innovations to the (metaphorical) tunnel along the way.
