US markets closed July 2026 with a rare and telling split. The S&P 500 ended the month exactly where it started — SPY at $747, a 0.0% move that masked one of the sharpest rotations of the year underneath the surface. The Dow edged higher, DIA finishing at $524.30 for a +0.4% gain, while the Nasdaq 100 dropped hard — QQQ fell 6.6% to $688 as mega-cap tech bore the weight of an AI spending reckoning. Small caps followed lower, IWM declining 3.1% to $291.20. The VIX settled at 15.99, down 2.8%, a deceptively calm reading for a month that included a geopolitical shock and the most divisive earnings season in years.

Winners and losers

The rotation out of growth and into value was the month’s defining trade. Energy led all sectors with a 12.1% gain (XLE to $59.55), powered by a 21.8% surge in WTI crude to $84.67 as Middle East supply risks repriced the entire complex. Financials followed at +6.2% (XLF to $56.94), benefiting from steepening yields — the 10-year Treasury climbed 7.4% to 4.745% and the 30-year rose 7.6% to 5.275%. Healthcare added 2.5% (XLV to $162.60), a defensive bid in a risk-off undercurrent.

On the other side, Technology was the worst-performing sector at -8.0% (XLK to $175.40), dragged lower by the mega-cap AI capex backlash. Industrials fell 2.9% (XLI to $179.80) and Consumer Discretionary slipped 1.0% (XLY to $116.10). In commodities, gold held steady at $4,049 (+0.7%) while copper gained 3.9% to $6.436. The dollar weakened, DXY dropping 1.4% to 99.8 as rate-cut expectations shifted — sterling was the standout, GBP/USD rising 1.6% to 1.346.

What drove July 2026

Three forces shaped the month. First, a dual chokepoint crisis in the Middle East: the collapse of the US-Iran ceasefire raised the spectre of Strait of Hormuz disruption, while simultaneous Houthi attacks on Saudi tankers in the Bab el-Mandeb created an unprecedented two-corridor supply threat. Physical oil traders scrambled for alternative routing, driving WTI above $84 even after OPEC+ announced output increases.

Second, Q2 earnings split the mega-cap trade in half. Microsoft and Amazon were rewarded for demonstrating demand-driven AI spend — Azure crossed a key revenue threshold and AWS beat expectations. Meta and Alphabet were punished: Meta’s EPS of $6.18 missed the $7.17 consensus by nearly 14%, and Alphabet’s free cash flow turned negative for the first time since its 2004 IPO after raising capex guidance to $205 billion.

Third, the macro data painted a cooling picture. June nonfarm payrolls came in at just 57,000 versus 115,000 expected. Q2 GDP printed at 1.5% annualised, below the 2.1% consensus. The Fed held rates at 3.50–3.75% on July 29, but three dissenters pushed for a hike — the most hawkish split this cycle — as the oil shock raised pass-through inflation concerns.

August 2026 outlook

The setup heading into August is an uncomfortable one: growth is slowing (1.5% GDP, 57K jobs), inflation has an oil-driven floor (WTI still above $84), and the Fed is frozen between those two forces. The flat S&P 500 is the market’s expression of that tension — neither bulls nor bears have a clean thesis.

The calendar concentrates risk into two clusters. The first lands August 12–14: July CPI on the 12th, PPI on the 13th, and retail sales on the 14th — three consecutive days that will show whether the oil surge is bleeding into broader prices or staying contained. June CPI’s surprise drop to 3.5% gave the doves cover; a reversal would shift the September FOMC calculus fast.

The second cluster falls August 26–28. The Q2 GDP second estimate lands on the 26th. NVIDIA reports fiscal Q2 earnings on August 27 — the single most-watched print of the season, and the definitive read on whether AI infrastructure demand justifies the capex wave that punished Meta and Alphabet. That same day opens the Jackson Hole symposium (August 27–29), themed “Financial Innovation: Implications for Payments and Policy.” The Fed Chair’s speech, expected Friday August 28, will be the market’s last window into Fed thinking before the September 15–16 FOMC meeting.

What we’re watching

Four things will define August for US markets. One: whether the July CPI print (August 12) confirms June’s downside surprise or reverses it — the answer determines whether the three Fed dissenters gain or lose support ahead of September. Two: NVIDIA earnings on August 27 as the verdict on AI capex — the stock will either validate the Microsoft/Amazon camp or extend the Meta/Alphabet selloff across the sector. Three: Jackson Hole on August 28 for any signal on the September rate decision, with the market currently split between a hold and a hike. Four: the consumer earnings cluster — Home Depot (August 18), Target (August 19), and Walmart (August 20) — as the real-economy read on whether 1.5% GDP is stabilising or deteriorating.