Monthly Market Radar: The Easy Money Era Is Over

For the period covering July 1, 2026, through July 31, 2026.

Global Perspective

The U.S. Economy Keeps Changing the Script

If there’s one theme that has defined 2026 so far, it’s this: the economy has consistently defied expectations. Higher interest rates were supposed to cool consumer spending, slow hiring, and weigh on business investment. Instead, the economy has continued to show surprising resilience. Consumers are still opening their wallets, employers are still hiring, and businesses continue to invest despite a much higher cost of borrowing. That’s good news. But it’s also why markets have become more complicated. When the economy is stronger, it gives companies room to grow, but it also makes it harder for inflation to return to the Federal Reserve’s 2% annual target. And as long as inflation remains stubborn, interest rates are likely to stay higher than investors had hoped. It’s worth noting that recent economic data reflected a drop in annual growth to 1.5%, down from 2.1% in the first quarter of the year. But while 1.5% growth is slower, it’s still growth. The economy did not contract; it just expanded at a more moderate pace. Simply put, it hasn’t become weaker; it’s just become harder to predict.

Our view? The economy’s resilience is a positive backdrop for investors. At the same time, it reinforces the need to adjust expectations for a market that may be defined by higher interest rates and greater selectivity than we’ve experienced in recent years.

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Different Economies, Different Paths

While much of the attention remains on the U.S., economic and policy conditions continue to vary widely around the world. In Japan, for example, policymakers faced the difficult task of gradually moving away from years of ultra-low interest rates without weakening the economy, while sharp swings in the yen created challenges by adding pressure to import prices and financial markets. Meanwhile, several emerging economies continued to benefit from stronger growth and investment tied to the global technology buildout, even as semiconductor-heavy markets faced major headwinds during the last six weeks. These differences highlight an important reality for investors: many countries are navigating the same broad forces—inflation, interest rates, geopolitical uncertainty, and technological change—but they are feeling their effects in very different ways.

Our view? Diverging economic and policy paths are likely to create both opportunities and periods of volatility. We believe global diversification remains important as investment leadership shifts across countries, currencies, and asset classes.

The Inflation Story Still Has an Unwritten Ending

Inflation is still moving in the right direction, but the journey has become much less predictable. Prices for many goods have cooled considerably from their post-pandemic highs. But other areas—particularly housing, services, and parts of the labor market—continue to put upward pressure on prices. For investors, that’s the key story. Markets don’t expect inflation to disappear overnight, but they do need confidence that it’s steadily moving lower over time. Until that happens, expectations for interest rates are likely to remain fluid, along with market volatility. 

Our view? We believe inflation will gradually move lower, but the path is unlikely to be a straight line. For the time being, that means investors should expect periodic market swings as expectations around Fed policy continue to evolve.

The Fed is Revealing Less and Reacting More

One noticeable change this year has been the Federal Reserve’s communication style. Rather than telling markets where policy is headed months in advance, Chair Kevin Warsh has made it clear that the Fed intends to respond to the data, rather than predict it. That puts even more attention on each jobs report, inflation reading, and wage update. Instead of markets reacting primarily to what the Fed says, they’re increasingly reacting to what the economic data suggests the Fed might do next. As a result, investors may need to become more comfortable with short-term uncertainty.

Our view? We expect the Fed’s data-driven approach to keep markets sensitive to economic surprises. For investors, staying focused on long-term trends rather than reacting to every headline will remain just as important as ever.

Equities

The New AI Narrative: Show Me the ROI

Artificial intelligence is still one of the biggest forces shaping today’s market. But investors have become more demanding. A year ago, some companies were often rewarded just for announcing bigger AI investments. Today, those announcements aren’t enough. Investors want results. They want to see AI improving productivity, lowering costs, growing revenue, and strengthening profits. Companies that can demonstrate those benefits continue to earn investor confidence. And those that can’t are finding that enthusiasm alone has limits. Even semiconductor companies—which remain essential to building AI infrastructure—have become more sensitive to questions about competition, valuation, and future demand. So, the hype around AI hasn’t disappeared. The standard for success has simply become higher. 

Our view? AI is one of the most transformative investment themes of our time. But as the technology matures, we expect investors to place far greater emphasis on execution and measurable business results. 

Semiconductors Do an About-Face

For much of the past two years, semiconductor companies—those that make the computer chips that power AI—sat at the center of the AI story, benefiting from extraordinary investor enthusiasm and rapidly rising valuations. But that momentum shifted noticeably during the summer. After beginning to pull back in mid-June, many of the sector’s biggest winners saw sharp declines in July as investors reassessed lofty expectations and took profits following an exceptional run. The pullback was especially pronounced in South Korea, where semiconductor leaders Samsung and SK Hynix experienced significant declines of about 20% and 35%, respectively, despite remaining key players in the global AI supply chain. The reversal served as a reminder that even the market’s strongest performers aren’t immune to periods of heightened scrutiny.

Our view? We don’t see this as the end of the AI story. We see it as the next stage. As the technology matures, investors are becoming more selective, rewarding companies that can demonstrate sustainable earnings growth and long-term competitive advantages rather than simply benefiting from AI enthusiasm.

Earnings Are Fueling the Market

Despite higher borrowing costs and macroeconomic uncertainty, corporate earnings remain the market’s biggest driver. Companies continue to report healthy profits, which help justify today’s high valuations, even as borrowing costs stay elevated. As investors become more selective, companies that consistently grow earnings are likely to continue attracting capital, while those that fall short may face a much less forgiving market. 

Our view? We believe this reinforces the importance of focusing on businesses with durable earnings, strong competitive positions, and the ability to execute across a variety of market environments.

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Fixed Income

Income is Back

One of the biggest surprises this year hasn’t been in stocks. It’s been in bonds. Investors began the year expecting lower interest rates. Instead, resilient economic growth and persistent inflation pushed those expectations back, propelling bond yields higher. That shift has created some price volatility, but it’s also restored something many investors haven’t enjoyed in years: meaningful income. 

Our view? This is one of the most compelling developments in today’s market. For the first time in years, investors can earn attractive yields from high-quality bonds while also benefiting from the equity risk diversification that fixed income can provide.

Quality Matters More

Corporate America remains in good financial health, generally speaking. Balance sheets are solid, defaults remain relatively low, and many companies continue to generate healthy cash flow. The challenge is valuation, in the sense that much of this good news is already reflected in bond prices. As a result, investors aren’t being compensated as much for taking on corporate credit risk as they were in the past. That doesn’t argue against owning corporate bonds. It simply reinforces the importance of being selective. 

Our view? We continue to see a lot of value in corporate bonds. But rather than reaching for the highest yield, we believe investors are better served by emphasizing quality and diversification.

Looking Ahead

Four Questions That Could Shape the Rest of 2026

Rather than trying to predict exactly what comes next, we’re focused on four key questions that we believe will shape the second half of the year. 

1. Will inflation keep moving lower?

   Inflation remains the biggest driver of interest rates, Fed policy, and overall market sentiment. And while progress has been encouraging, the final stretch of getting back to the Fed’s 2% annual target has certainly proven to be the hardest. Continued progress could give policymakers more flexibility, while stubborn inflation may keep interest rates higher for longer. We think inflation should continue to ease over time, but investors should expect the path to remain uneven rather than a straight line.

2. Will higher interest rates become the new normal?

   Markets have largely stopped asking when rate cuts will begin. The bigger question is where interest rates ultimately settle, and what that means for borrowing costs, valuations, and portfolio positioning. While we don’t expect rates to stay at today’s levels forever, we do believe investors should prepare for an environment where borrowing costs remain higher than they were during much of the last decade.

3. Will AI deliver on its enormous promise?

   Companies have spent hundreds of billions of dollars building out AI capabilities. Now, investors are looking for evidence that those investments are translating into stronger earnings, higher productivity, and lasting competitive advantages. We continue to believe AI will be a transformative force for businesses and investors alike. But as the technology matures, we expect markets to reward measurable results over bold promises.

4. Will market leadership continue to broaden?

   A healthier market is one where more sectors, industries, and company sizes participate. And one of the most encouraging trends we’ve seen this year has been broader market participation beyond the largest technology companies. If that continues, it could create a more balanced and durable market than we’ve seen in recent years. We believe broader participation would be a welcome sign that the market’s strength is becoming more sustainable rather than relying on just a handful of companies.

    

Bottom Line

The market has proven remarkably resilient in 2026, but resilience doesn’t eliminate uncertainty. Inflation is still being fought, interest rates remain elevated, and investors are becoming more discerning about where they put their money. The era of easy gains driven by abundant liquidity has largely passed. Valuations have to be supported by earnings. Going forward, company fundamentals, earnings growth, and thoughtful diversification are likely to matter more than ever. While we expect volatility to remain part of the landscape, we believe a disciplined, long-term investment approach, with granular attention to selectivity, remains the best way to navigate an environment where opportunities are expanding.

This information is not intended as a recommendation. The opinions are subject to change at any time and no forecasts can be guaranteed. Investment decisions should always be made based on an investor’s specific circumstances. Investing involves risk, including possible loss of principal.

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