July Mid-Month Market Update 

Key Numbers 

Markets have continued to show resilience through the first half of July, but investors are being asked to hold two ideas at the same time. The broader market remains constructive, supported by corporate earnings, artificial intelligence investment, and a still-growing economy. At the same time, inflation, interest rates, energy prices, and geopolitical uncertainty continue to create a less forgiving environment. 
 
Before moving into the broader themes, here is how several major indexes stood through the July 15 market close for this mid-month update. 

Major stock indexes remain positive for the year. As of July 15, the Russell 2000 was up 19.9% year to date, the Nasdaq was up 13.0%, the S&P 500 was up 10.6%, and the Dow was up 9.6%. Entering the week, the S&P 500 had posted its fourth weekly gain in five weeks, helped by continued enthusiasm around companies tied to artificial intelligence.  

Interest rates remain elevated. Official Treasury data through July 15 showed the 2-year Treasury yield at 4.13%, the 10-year at 4.55%, and the 30-year at 5.08%. That continues to keep borrowing costs meaningfully higher than investors became accustomed to during the low-rate period of the past decade.

Inflation remains one of the most important issues for markets, but the latest report showed some near-term cooling. The June CPI report showed the Consumer Price Index decreasing 0.4% on a seasonally adjusted basis after rising 0.5% in May, while prices remained 3.5% higher than a year earlier. Energy was the main driver of the monthly decline, falling 5.7% in June. Core CPI, which excludes food and energy, was unchanged for the month and rose 2.6% year over year.

Producer prices also cooled in June. Final demand PPI fell 0.3% for the month and increased 5.5% over the prior 12 months. Goods prices fell 1.4%, led by a 6.4% decline in energy and a 12.0% drop in gasoline prices. Services prices moved higher by 0.2%, which shows that inflation pressure has eased in some areas but has not disappeared entirely. The labor market is still providing support, but it has cooled. Nonfarm payrolls increased by 57,000 in June, the unemployment rate held at 4.2%, and average hourly earnings rose 3.5% from a year earlier. April and May payroll figures were also revised lower by a combined 74,000 jobs. That does not point to a broken labor market, but it does show a slower pace of hiring than earlier in the cycle.

A Market Adjusting to Crosscurrents 

July has not given investors a simple “all clear” signal. Instead, markets are continuing to adjust to a familiar but complicated mix: solid growth, elevated rates, sticky inflation, strong corporate earnings, and energy-driven uncertainty. The economy is still expanding. The Bureau of Economic Analysis reported that real GDP increased at a 2.1% annualized rate in the first quarter, compared with 0.5% growth in the fourth quarter of 2025. Investment, exports, government spending, and consumer spending all contributed to growth, while imports subtracted from the headline calculation. 

That growth has helped support markets. Corporate earnings have remained an important source of strength, particularly in areas tied to technology, infrastructure, and productivity. Fidelity noted that more than 80% of S&P 500 companies reported positive earnings surprises for the first quarter, with revenue growth and healthy profits also supporting the broader earnings backdrop.  

Still, this is not a market where every area is moving together. Some parts of the market are benefiting from AI-driven capital spending, while other areas remain more sensitive to interest rates, energy costs, and consumer strain. Schwab’s mid-year outlook described the setup well: earnings are helping drive the bull market, but leadership remains narrow and concentrated in AI and energy-related sectors. That does not make the market unhealthy. It does mean investors need to be more selective. 

What’s Driving Markets Right Now 

Interest rates remain the primary driver. At its June meeting, the Federal Reserve kept the federal funds target range at 3.50% to 3.75%. The Fed noted that economic activity was expanding at a solid pace, but also that inflation remained elevated relative to its 2% goal, partly reflecting supply shocks in areas such as energy. 

The Fed’s updated projections also reinforced why investors should not assume a quick pivot toward lower rates. In the June Summary of Economic Projections, Fed officials projected 2026 PCE inflation at 3.6%, core PCE inflation at 3.3%, and a year-end federal funds rate of 3.8%. Those numbers were higher than the March projections and suggest that the Fed still sees inflation as a meaningful risk.  

Vanguard’s latest U.S. outlook also points to a patient Fed. Vanguard described the current environment as one where inflation remains uncomfortably above target and policy is likely to stay on hold through 2026, even as hiring slows and the labor market softens modestly. Energy prices are another key driver. Oil moved higher on July 13 following renewed conflict in the Middle East, with Brent crude jumping sharply and renewed concerns around shipping through the Strait of Hormuz. That weighed on parts of the equity market, especially AI-related and semiconductor stocks, while also pushing the 10-year Treasury yield higher.  

Artificial intelligence remains one of the clearest sources of market leadership. Companies tied to semiconductors, cloud infrastructure, data centers, power demand, and select industrial areas continue to benefit from the investment cycle around AI. BlackRock has described the AI buildout as accelerating, with bottlenecks appearing around power, grids, chips, and data centers. That does not mean every AI-related company is attractive at any price. It means markets are continuing to reward businesses that can turn investment and innovation into real earnings growth. 

Rotation Beneath the Surface 

One of the more important things happening right now is what we are seeing beneath the surface of the market. Technology remains an important source of leadership, but that leadership is not without risk. Expectations are high, and when expectations are high, even strong companies can experience volatility if results, guidance, or valuations disappoint. 

Goldman Sachs recently noted that resilient growth, continued AI momentum, and strong corporate earnings support a constructive outlook for risk assets. At the same time, the firm pointed to geopolitical uncertainty, inflation risk, divergent policy paths, and market concentration as reasons portfolios need careful positioning.  

Outside of technology, other areas of the market are responding to different forces. Financials remain sensitive to interest rates, credit conditions, and the start of earnings season. Industrials continue to benefit from capital spending and infrastructure demand. Energy remains important, but performance can shift quickly as oil prices respond to geopolitical developments. Small-cap stocks have had a strong year so far, but they remain more sensitive to borrowing costs. Their participation may improve if investors become more confident that rates can stabilize or move lower. For now, elevated rates remain a headwind. 

International markets have also remained relevant. Emerging markets and developed international markets have participated in the broader rally, which is a reminder that diversification can matter most when leadership is shifting. This type of rotation is normal, but it reinforces the need for discipline. In a higher-rate environment, quality matters. Balance sheets matter. Valuation matters. Earnings durability matters. 

What This Means for Investors 

For long-term investors, this is not an environment that calls for abandoning a plan. It is also not an environment that rewards chasing whatever has moved the most. 

Higher interest rates have restored a more meaningful role for fixed income in portfolios. Bonds and other income-oriented investments are offering yields that were not available for much of the past decade. That can be helpful for investors who need income or more stability. 

However, investors still need to be mindful of duration, inflation, and the possibility that rates stay elevated longer than markets expect. Higher yields are helpful, but they do not eliminate risk. Equities continue to offer long-term growth potential, especially in areas tied to innovation, productivity, and durable earnings. However, elevated valuations in some parts of the market leave less room for disappointment. Fidelity noted that earnings and AI spending are helping fuel the bull market, but also warned that a prolonged oil crunch could push rates and inflation higher, creating pressure for stocks.  

For retirees and income-focused investors, the message is similar. Higher yields can help support income needs, but inflation can still erode purchasing power over time. That means portfolios need a thoughtful balance of income, growth, and liquidity. The key is balance. This is a market landscape where diversification, selectivity, and discipline remain especially important. 

What Could the Rest of July Look Like? 

Looking ahead, the rest of July will likely depend on four things: inflation data, Federal Reserve communication, energy prices, and corporate earnings. 

The latest inflation reports came in this week, with June CPI and PPI both showing some cooling from the prior month. That may help markets become more comfortable with the idea that the Federal Reserve can remain patient. Still, inflation remains above the Fed’s long-term target, and energy prices remain a swing factor. 

The next Federal Reserve meeting is scheduled for July 28–29. Markets will be watching whether the Fed continues to emphasize patience or becomes more concerned about inflation risk.

Bottom Line 

The first half of July has shown that markets remain resilient, but also more complicated. The economy is still growing. Corporate earnings continue to provide support. AI-related investment remains a powerful force. But inflation has not fully settled, interest rates remain elevated, and energy prices continue to create uncertainty. 

This is not about predicting every short-term move. It is about recognizing the environment for what it is. Markets are still constructive, but they are also more selective. That makes discipline more important, not less. 

Our focus remains on diversification, quality, income planning, and staying aligned with long-term goals, particularly for those relying on their portfolios for retirement income. While market conditions will continue to evolve, maintaining a thoughtful long-term investment approach remains essential. 

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