July was a bumpy month for markets. The S&P 500 and Nasdaq both slipped, volatility spiked, and headlines were dominated by AI jitters, surging bond yields, a flare-up in the Middle East, and a Federal Reserve that’s growing more divided. Yet if you zoom out, stocks remain close to all-time highs and year-to-date returns are still healthy.
So what actually happened last month, and what should long-term investors take away from it? Here’s the rundown.
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The Month in Numbers
- Stocks: The S&P 500 dipped 0.1% and the Nasdaq fell 3.2%, while the Dow Jones Industrial Average managed a 0.3% gain.
- Volatility: The VIX spiked as high as 21 mid-month before easing back toward 16.
- International markets: Developed markets (MSCI EAFE) gained 1.9% in dollar terms, while emerging markets (MSCI EM) fell 3.3%.
- Bonds: The 30-year Treasury yield hit a 19-year high near 5.28%, and the 10-year peaked at 4.74%. The Bloomberg U.S. Aggregate Index lost 1.3%.
- Oil: Brent crude briefly topped $100 before settling near $90; WTI closed around $85.
- Currencies & gold: The U.S. Dollar Index dipped just under 100, the yen weakened to around 157, and gold held steady near $4,050 an ounce.
- Growth: Second-quarter real GDP grew at a 1.5% annual rate, a slowdown from 2.1% in Q1.
- The Fed: Policymakers held rates steady at 3.50%–3.75%, but the vote was a surprisingly split 9-3.rprisingly split 9-3.
AI Enthusiasm Meets a Reality Check
AI remains the dominant story in markets, but July brought a dose of skepticism. Second-quarter earnings reports reignited questions about whether the hundreds of billions that “hyperscalers” are pouring into data centers and AI infrastructure will actually pay off. That spending is now big enough to be a major driver of U.S. economic activity in its own right, even outpacing traditional office construction.
The AI jitters spread internationally too. Global chipmakers saw sharp pullbacks, and South Korea’s KOSPI 200 index dropped a striking 24% in July after a big run-up the year before.
Adding to the uncertainty: Chinese AI startup Moonshot AI released a new large language model, Kimi K3, which reportedly rivals top offerings from U.S. players like OpenAI, Anthropic, and Alphabet. Unlike most leading models, it’s “open weight,” meaning anyone with the right hardware can run it. Coming on the heels of last year’s efficiency breakthroughs from DeepSeek, Kimi K3 is a reminder that the competitive landscape in AI, both in the U.S. and abroad, is still very much unsettled.
Fitch also weighed in, warning about credit risk building up across the AI ecosystem given softening consumer spending and how tightly interconnected the financing arrangements among major AI players have become.
The takeaway for investors: AI is a powerful theme, but it’s not the only one. Other sectors, including energy and industrials, have also performed well this year. Staying diversified across sectors continues to matter.
Middle East Tensions Send Oil Higher
Renewed conflict involving Iran rattled energy markets in July. U.S. airstrikes on Iranian military targets slowed traffic through the Strait of Hormuz, a critical artery for global oil shipments. Tensions widened further when Houthi forces struck Saudi oil tankers near the Bab al-Mandeb Strait in the Red Sea, another key shipping chokepoint.
Brent crude spiked above $100 in response before cooling to roughly $90 by month’s end, a sharp swing from the $72 lows seen earlier in July. With gas prices still hovering around $4.10 a gallon nationally, this kind of energy volatility has real implications for household budgets and could keep inflation elevated.
A Divided Fed Holds the Line
The Federal Reserve kept its target rate unchanged at 3.50%–3.75%, but the decision wasn’t unanimous; three officials dissented in favor of raising rates. That’s a notable split, the first disagreement of this kind since September 2016.
New Fed Chair Kevin Warsh has also pulled back on forward guidance, keeping FOMC statements simpler and declining to detail how the Fed might respond to various economic scenarios. Less communication from the Fed means more uncertainty for investors trying to anticipate the next move.
Markets are now pricing in a possible rate hike as early as October, with another potentially following by mid-2027. In the meantime, bond yields have jumped to some of their highest levels in years. For investors, that volatility cuts both ways: it can be uncomfortable in the moment, but higher yields also open up better opportunities for diversification.
Tariffs Add Another Layer of Complexity
Trade policy took another twist in July. After the Supreme Court struck down last year’s reciprocal tariffs (which had been imposed under emergency economic powers), the administration pivoted to new tariffs under different legal authority. When those temporary tariffs expired, the White House rolled out yet another round, this time under Section 338 of the Tariff Act of 1930.
The net effect: most countries now face tariffs in the 10%–12.5% range, while some, including Canada on goods like cement, dairy, and alcohol, face tariffs as high as 50%.
It’s still early to know exactly how these tariffs will ripple through the economy. But so far, many of the worst fears haven’t materialized. Growth has continued and the S&P 500 has notched multiple all-time highs over the past year, even as tariff policy has shifted repeatedly.
The Bottom Line
July was a good reminder that markets rarely move in a straight line. AI-related swings, rising yields, geopolitical flare-ups, and shifting trade policy all created headlines and volatility. But none of it derailed the broader trend: markets remain near record highs, and the economy continues to grow, even if more slowly than earlier in the year.
For long-term investors, the lesson is the same one that keeps proving true: stay diversified, keep perspective, and don’t let any single month’s headlines drive your decisions. Volatility can be uncomfortable, but it also creates opportunities for those who stay disciplined and positioned across asset classes.