Investment market update: July 2026

Ongoing conflict in the Middle East and investor concerns that technology companies are overvalued continued to affect market performance. Read on to find out how these factors and others may have impacted your investment portfolio in July 2026.

Markets started the month with a sell-off of chip stocks as investors lost enthusiasm for AI. Asian markets were particularly affected on 2 July, with South Korea index the KOSPI suffering an 8% loss.

Despite poor job data, US markets made gains on 2 July. Some investors believed that the slowdown could ward off potential interest rate hikes, which led to the broad S&P 500 index rising 0.4%.

The view that central banks will be reluctant to increase interest rates in major economies continued to have an effect on 3 July in Europe. Main indices in the UK and Germany saw rises.

When markets reopened following the weekend on 6 July, European markets slipped. The pan-European index Stoxx 600 was down 0.4%, with the worst performer, Dutch chip equipment company BE Semiconductor Industries, down 6.8%. It was a different story in the US, where markets lifted on opening.

An Iranian attack on a tanker in the Strait of Hormuz alongside investors questioning the valuation of AI companies led to markets dipping on 8 July. London’s FTSE 100 index was 1.2% lower on opening, and indices in Italy, Germany, and the US were similarly affected.

On 9 July, the UK’s biggest pharmaceutical company, AstraZeneca, became the biggest loser on the FTSE 100 after a new heart drug failed a late-stage clinical trial. The company’s shares fell sharply by 9.2% and pulled the FTSE 100 down by 0.5%.

Tensions in the Middle East have led to oil prices rising, which is affecting airlines. On 13 July, European airline stocks fell, and the travel and leisure index on the Stoxx Europe 600 was down 1.2%. Many company shares were also affected, including Ryanair (-0.9%), Air France (-2.4%), and British Airways owner International Airlines Group (-1.9%).

The following day, ongoing strikes in the Middle East led to oil prices rising 3.5% and European shares falling in response.

Technology valuation concerns reared their heads again on 17 July. The resulting sell-off led to Japan’s Nikkei 225 index dropping almost 5%, while Japanese chipmaker Kioxia tumbled 16%. The sell-off affected European and US markets, though the FTSE 100, which has relatively low exposure to technology, fared better and was up 0.2%.

New UK prime minister, Andy Burnham, has appointed former defence secretary, John Healey, as chancellor. On 21 July, the news led to speculation that Healey would use his new position to boost defence spending. Companies in the sector saw share prices rise as a result, including Babcock International (4%), BAE Systems (2.4%), and QinetiQ (3.5%).

On 27 July, the US paused its strike on Iran, which led to European markets rallying, including the FTSE 100 (0.5%), France’s CAC 40 (1.1%), and Germany’s DAX (1.5%).

On 28 July, yet another AI sell-off saw the KOSPI fall 10%, the Nikkei 225 down 4%, and shares in chipmakers down by more than 10%. Chipmaker CXMT bucked this trend. The company debuted on the Shanghai Stock Exchange, and shares were up more than 400% on its first day of trading.

UK

UK inflation fell faster than expected, reaching a rate of 2.6% in the 12 months to June 2026.

Despite concerns that the conflict in Iran would lead to the economy contracting, data from the Office for National Statistics suggests this wasn’t the case. Indeed, the UK economy grew by 0.1% in May 2026.

Prime Minister Andy Burnham could face difficult decisions in the coming months. The Office for Budget Responsibility warned that tax rises or spending cuts will be needed to avoid debt spiralling. The risk is partly due to an ageing population. Health spending is set to reach 8% of GDP by 2030/31 and climb to 13% by 2075/76.

Purchasing Managers’ Index (PMI) readings, which measure the health of sectors, suggest the UK is struggling. In June, the manufacturing reading remained above the 50 mark at 52.5, which indicates growth, but had fallen when compared to May.

The construction downturn eased slightly, but the PMI reading remained well below the 50 mark at 38.4.

Europe

The eurozone neared its 2% inflation target in June, with a rate of 2.8% after it fell more quickly than expected. The drop was linked to a decline in oil prices and tensions in the Middle East easing. However, events during July 2026 could see inflation start to creep back up.

A factory PMI reading shows the eurozone had its best quarter in almost four years in the three months to the end of June 2026. The 51.4 reading was again linked to the Middle East conflict easing and allowing some trade to resume.

US

US inflation fell more than expected to 3.5% in the 12 months to June 2026. While this is positive news, it’s still above the target of 2%.

Job data released by the Bureau of Labor Statistics revealed only 57,000 new jobs were added in June, well below the expected 110,000. In addition, wages are falling in real terms. The data could suggest businesses are taking a cautious approach.

US president Donald Trump previously pitched trade tariffs as a way to close the deficit in the federal budget and encourage factories to return to the US. However, a Supreme Court ruling deemed the tariffs illegal, and the US has refunded $81 billion (£61 billion), leading to the deficit widening again.

US technology giant Microsoft announced it would cut 4,800 jobs, the equivalent of around 2.1% of its global workforce, in the latest round of layoffs affecting the technology sector. The news comes after shares in the business have fallen by around 19% in the year to 6 July.

Asia

China’s economic data showed GDP growth of 4.3% in the quarter to 30 June. While this figure would be celebrated in other economies, it’s one of the slowest rates on record and lags behind the target of 4.5% to 5%. The dip was linked to sluggish domestic demand.

Indeed, further data shows that China’s exports are surging. Lifted by orders for chips and computing power to support an AI boom, exports were up 27% in June when compared to a year earlier. The boost puts China on track to post a trade surplus of $1 trillion (£0.75 trillion) in 2026 for the second year running.

Speculation that fast-fashion giant Shein would unveil an IPO (initial public offering) has now been confirmed. The company has received approval from Hong Kong. However, the valuation could be lower than expected. In 2022, when Shein considered an IPO in London, it was valued at $100 billion (£74 billion), but reports suggest this will be cut significantly to around $50 billion (£37 billion).