July Market Recap: AI Earnings Boost Global Equities Despite Tariff Tensions

CIO Duane Gilbert shares why he still sees room for growth in global equities, with South Africa starting to show promise.

Summary

• Constructive on Global Equities – We favour equities over bonds and cash, with a clear preference for the U.S. market given strong consumer demand, resilient margins, and renewed fiscal stimulus. Europe remains underweight due to structural headwinds.
  
  
• Bullish on Commodities – Falling real yields, a softer dollar, and policy-driven demand support our allocations to gold and industrial metals, which we see as effective hedges against macro risks and beneficiaries of global reflation.
  
  
• Selective Opportunities in South Africa – Improving global commodity trends and a weaker dollar create tailwinds for South Africa. We are reallocating some exposure into SA equities, while staying cautious on government bonds and favouring high-quality credit.
  

Global Overview: Solid Gains Amid Shifting Tides

July delivered another month of positive returns for global equity markets, supported by strong second-quarter earnings in the U.S., optimism around AI-driven growth, and further clarity on trade and fiscal policy.

Despite renewed tariff tensions entering August, risk appetite held firm through July, particularly across developed markets and technology names. The MSCI World Index advanced 1.3% in USD, while emerging markets outperformed, rising 2.0%, led by strength in Chinese and Taiwanese equities.

Investors shrugged off early signs of inflation reacceleration and instead focused on resilient U.S. growth data and robust corporate profitability. While geopolitical risks, especially in the Middle East and on the U.S.–China trade front, added complexity, market momentum proved difficult to derail.

Equities: U.S. Tech in Command, EMs Find New Tailwinds

The standout performer in July was again the U.S. technology sector. Strong earnings from AI-leveraged firms, a rollback in some semiconductor export restrictions to China, and renewed corporate capex plans saw the Bloomberg Magnificent 7 Index rise 5.8% month-on-month.

Nvidia led the charge with a 12.6% gain, while Alphabet, Microsoft, and Meta rallied 8.7%, 7.3%, and 4.8%, respectively, on the back of positive earnings surprises.

However, Tesla was a notable laggard, falling 8% as its Q2 results disappointed. Earnings per share fell 53% YoY, hit by the expiration of U.S. EV subsidies. CEO Elon Musk warned of "a rough few quarters" as the company pivots toward autonomous driving monetisation in 2026.

Second-quarter earnings season has been largely supportive. As of month-end, nearly 80% of S&P 500 companies reporting had beaten both earnings and revenue expectations. The S&P 500 gained 2.2% in USD, helping push developed market equities further into double-digit territory year-to-date.

In contrast, European equities slipped. The MSCI Europe ex-UK Index fell 1.8% in USD terms, hurt by tariff concerns and cautious corporate guidance from large-cap industrials. Tech exporters in Germany and the Netherlands issued warnings over the impact of new U.S. tariff regimes on 2026 growth.

Emerging markets, however, built on June’s momentum. The MSCI EM Index gained 2.0%, led by a 4.5% advance in the Shanghai Composite and continued strength in Taiwan, where the AI boom continues to lift sentiment. Commodity exporters like South Africa and Brazil also saw inflows, aided by firmer iron ore prices and a softer U.S. dollar.

U.S. Macro: Growth Rebounds, But Labour Market Softens

The U.S. economy showed surprising resilience in Q2, with annualised growth of 3.0%, well above the 2.4% consensus. This marked a strong recovery from Q1’s 0.5% contraction, driven by robust consumer spending and a rebound in exports.

Inflation, however, edged higher. The headline CPI rose 2.7% year-on-year in June, while core CPI printed at 2.9%, both in line with expectations. Tariff-related inflation appears contained for now, with effective rates below headline statutory rates due to supply chain adjustments.

The labour market showed signs of fatigue. The unemployment rate ticked up to 4.2%, and nonfarm payrolls rose by just 73,000, missing estimates. Prior months saw heavy downward revisions, suggesting some loss of momentum.

Despite these mixed signals, the Federal Reserve held rates steady at 4.25%–4.50%, with growing internal division. Two FOMC members dissented in favour of cuts—the first dual dissent since 1993. Chair Jerome Powell struck a hawkish tone post-meeting, leaving markets uncertain about further easing this year.

Trade & Tariffs: Clarity, Then Escalation

Early July brought relief on the trade front. The U.S. secured new bilateral deals with Vietnam (20% tariffs, 40% on trans-shipments), Japan, and the EU (mostly 15% tariffs). Though higher than pre-Trump levels, the clarity helped markets price in trade friction more accurately and curbed fears of an unchecked tariff spiral.

However, the end of the month saw a sharp reversal. The White House announced sweeping new tariffs, averaging 16%, the highest in nearly a century, impacting imports from Canada, India, South Korea, Switzerland, and the EU. Copper markets were rattled after an unexpected pivot: instead of targeting raw copper ore, the U.S. imposed duties on semi-finished copper products, sending prices lower.

These developments will likely shape August volatility, but for now, markets seemed more focused on the fiscal support backdrop and earnings momentum.

Europe and the UK: Inflation Stalls, Growth Slows

The Eurozone’s inflation rate remained flat at 2.0% YoY in July, with core pressures subsiding modestly. The ECB left rates unchanged, ending its easing cycle after eight cuts. However, Q2 GDP growth slowed to 0.1%, the weakest since late 2023, even as the unemployment rate held at 6.2%.

In the UK, June’s inflation ticked up to 3.6% (vs 3.4% prior), surprising to the upside. Core inflation rose to 3.7%, with gains driven by transportation and recreation costs. Despite inflationary pressure, the Bank of England kept rates on hold, amid a backdrop of rising unemployment (4.7%) and sluggish but positive GDP growth (+0.7% in Q1).

Asia: Stabilisation in China, Japan Holds Steady

China showed tentative signs of recovery. Q2 GDP grew 1.1% QoQ, exceeding expectations despite tariff pressure. Industrial production rose 6.8% YoY in June, and the Caixin manufacturing PMI moved back into expansion territory at 51.2. Consumer prices finally turned positive—+0.1% YoY in June—and liquidity conditions improved, thanks to accommodative policy from the People’s Bank of China, which kept lending rates at record lows.

In Japan, inflation eased to 3.3% in June, down from 3.5%. The Bank of Japan held its policy rate at 0.5%, the highest since 2008, continuing its gradual path toward normalisation.

Fixed Income & FX: Yields Drift Higher, Dollar Rebounds

The combination of strong U.S. growth and fewer expected Fed cuts lifted Treasury yields. The 10-year U.S. yield rose 15bps to 4.38%, while corporate bond spreads narrowed on earnings strength. Global bonds sold off, with the Bloomberg Global Aggregate Index losing 1.5%, as the U.S. dollar rallied 3.2% (DXY), breaking a six-month losing streak.

In Europe, bond yields also moved higher amid stronger PMI data and fiscal uncertainty tied to U.S.–EU trade commitments. Eurozone 10-year yields climbed, though remained well anchored by ECB policy inertia. In the UK, 10-year gilt yields rose to 4.6%, driven by the hot inflation print.

Local Markets

South African equities moved in step with global markets in July, with the JSE All Share Index gaining 2.2% for the month. Performance was broad-based, as Financials rose 1.4%, Industrials advanced 1.3%, and the Resources sector led with a 5.2% increase. Local bonds also performed strongly, returning 2.0%, buoyed by a stable inflation backdrop and growing expectations of further policy easing. In currency markets, the rand appreciated by 2.8% against the US dollar, but lost ground to the euro and pound, weakening 0.4% and 1.1% respectively.

Underlying macro indicators pointed to tentative improvement, though momentum remains patchy. The S&P Global South Africa PMI edged up to 50.3 in July, from 50.1 in June, reflecting marginal expansion in private sector activity. New orders and employment showed modest gains, while output remained subdued and export demand continued to soften. The Absa Manufacturing PMI rose to 50.8, the first reading above the neutral mark in nine months, helped by firmer domestic demand and improved supplier delivery times. Business sentiment also lifted: the SACCI Business Confidence Index rose to 116.7, driven by stronger vehicle sales, firmer metals prices, and contained inflation expectations. Even so, the broader outlook remains cautious amid shifting global trade dynamics and local growth constraints.

On the policy front, the South African Reserve Bank cut the repo rate by 25 basis points to 7.00% at its meeting on 31 July, marking its second cut this year. The decision was unanimous, and the Bank signalled a preference for anchoring inflation toward the lower end of its 3–6% target band. The move came after headline CPI rose to 3.0% year-on-year in June, up from 2.8% previously, and 2025 inflation expectations fell to 3.9%, the lowest in over four years. With real rates still elevated and growth under pressure, the tone of the statement suggests that further easing remains on the table—though the pace will be data dependent. 

Chief Investment Officer, Duane Gilbert’s Commentary

Our core outlook remains constructive on risk assets, particularly global equities. While macro uncertainty persists, the combination of fiscal expansion in the US, easing trade tensions, and a weakening US dollar provides a supportive backdrop for pro-growth positioning. We continue to favour equities over bonds and maintain an underweight allocation to cash, reflecting our conviction that the opportunity cost of staying on the sidelines remains elevated.

Within global equities, the US remains our preferred market. Strong consumer fundamentals, improving corporate margins, and renewed fiscal stimulus reinforce our belief in the resilience of the US economy. We are maintaining a structurally overweight position here. In contrast, we remain underweight Europe, where structural impediments, weak productivity dynamics, and political fragmentation continue to limit upside potential. In terms of portfolio orientation, we have tilted further toward cyclical and pro-growth exposures. The combination of falling real yields, a softening dollar, and policy-driven demand is bullish for commodities. We have increased our allocations to both gold and industrial metals, which we see as effective hedges against macro instability and key beneficiaries of global reflation dynamics.

Importantly, we are beginning to see a more constructive setup for South Africa. A softer dollar trend and rising global commodity prices are meaningful tailwinds for the domestic economy. In light of this shift, we are reallocating a portion of our global equity exposure—particularly from developed markets outside the US—into South African equities. We believe this move will allow us to take advantage of a potentially improving local macro environment. Our domestic equity positioning remains selective, with a focus on companies capable of delivering earnings growth in a still-constrained fiscal landscape.

We remain underweight South African government bonds due to long-term structural concerns, but we continue to favour high-quality, secured credit. Our moderate cash position gives us the flexibility to respond quickly to market dislocations or tactical opportunities.

Discover more insights in our blogs

So, When Do You Actually Sell Shares?

7 Tips to Survive and Thrive During Market Uncertainties

Why Defensive Stocks Can Be Your Best Bet for Stability and Income

Have You Tried These Saving Tips to Hit Your First R50,000?

How to Spot Shares That Are on the Rise

How to Customise Your Viewing Experience on Easy 3.0

Inside Our Team’s Top AI Basket Picks and Platform Features

Buying the Dip Doesn’t Mean Just One Thing

How to Create Powerful Prompts for AI Baskets on EasyEquities

Any opinions, news, research, reports, analyses, prices, or other information contained within this research is provided by an employee of EasyEquities an authorised FSP (FSP no 22588) as general market commentary and does not constitute investment advice for the purposes of the Financial Advisory and Intermediary Services Act, 2002. First World Trader (Pty) Ltd t/a EasyEquities (“EasyEquities”) does not warrant the correctness, accuracy, timeliness, reliability or completeness of any information (i) contained within this research and (ii) received from third party data providers. You must rely solely upon your own judgment in all aspects of your investment and/or trading decisions and all investments and/or trades are made at your own risk. EasyEquities (including any of their employees) will not accept any liability for any direct or indirect loss or damage, including without limitation, any loss of profit, which may arise directly or indirectly from use of or reliance on the market commentary. The content contained within is subject to change at any time without notice.