Monthly Outlook: July 2026
Happy July 4th! America likes to celebrate the holiday with parades, barbeques, fireworks, and gatherings with friends and family. This year is an especially momentous one as we enjoy 250 years of American history. Maybe it’s a good time, then, to take a moment during the revelry to reflect on how many freedoms and liberties we enjoy, albeit in our imperfect nation. Thomas Jefferson wrote “Life, Liberty, and the Pursuit of Happiness” into our Declaration of Independence as our basic rights, and we continue to enjoy them today. Not every country does as much.
That said, 2026 America is a different world than it was at its inception in 1776. We’ve enjoyed enormous benefits from innovations and inventions, and our standard of living is the highest in history. On the other hand, we’ve endured many wars, booms and busts, debt and deficits, political banter, and environmental stress. Will the U.S. survive another 250 years? Even if it does, the U.S. of 2,276 will certainly look much different than today. One thing is for certain: change is constant. It’s probably best to live in the present and deal with the world, and the markets, as they are.
Looking Ahead to 2H 2026
With half of 2026 behind us, let’s review where markets are today and how they’re trending. The big story of 2026 remains “AI” including all the stocks that claim to be AI related, the true innovation that AI brings, and the hype and promises that some promotors want us to believe. Companies in the AI space are rushing to the IPO market to capitalize on the feeding frenzy and lofty valuations. We’ve already seen the SpaceX IPO price at 90x revenue and OpenAI and Anthropic will come to market soon.
But as “hot” as AI stocks are, not all technology companies are doing as well. The Software group (Microsoft) is now trending lower, and the Communications sector (Meta, Disney, Netflix) is also in a downtrend. Another key sector in the US Growth market is Consumer Cyclicals and many of these stocks, including Amazon, Tesla, and McDonalds, are now trending lower, as well. The point is that US Growth, which has been the leading asset class for most of the past few years, has become a mixed bag and has surprisingly given up leadership to other asset classes.
US Value, which is the other half of the US Large Cap stock market, has taken over leadership from US Growth in 2026. These include the more “boring” and more fairly valued sectors like Financials, Healthcare, Consumer Staples, and Energy. These sectors don’t get the attention and the press of US Growth, but this is where the money is being made.
The U.S. stock market is about 62% of the global stock market and gets the most attention, especially for us American investors. But the International (non-US) stock market has actually outperformed the US markets by about 4% this year. Like the US market, International Value stocks (like Roche, HSBC, Shell) are outperforming International Growth stocks. And amongst the International stock markets, it’s the Emerging Markets that are the superstars in 2026. Taiwan is up 56% and Korea is up 99%. That’s amazing until you remember that AI chip makers, Taiwan Semiconductor, SK Hynix, and Samsung drive those markets.
Lastly, the bond market is rangebound with about 1%, YTD, returns. There’s a new Fed Chairman and lots of talk about the direction of Fed Funds, but the middle part of the yield curve is what drives bond returns and the 10-year US Treasury rate has been stuck in a range around 4.25%.
How to Play the Back Half of 2026
As we position portfolios going into the second half of 2026, we intend to stay fully weighted in the strongest markets and underweighted any downtrending markets. That means we have a healthy amount of International stocks including Emerging Markets. And we’re still heavily invested in US stocks but tilting more toward Value and less toward Growth, except for Technology. Our bond positions are in mid/long maturities due to softening longer-term rates.
Just as America will likely be different over the next 250 years, the rest of 2026 will likely be different than the first half. The challenge is that no one really knows how. Our strategy is not to predict, but to prepare. We watch all markets very carefully, we measure the price trends and strength of momentum, and we’re willing to shift portfolios as needed. We don’t stay stubbornly resolute with opinions, but flexible and focused on staying positioned for the markets, as they actually are. Happy holiday!