July 2026 Market Commentary

July 14, 2026

• US and Iran agree to peace plan.
• Fed holds rates steady at June FOMC meeting, the first led by new Chair Kevin Warsh.
• June Returns: S&P 500 -1.1%. Bloomberg US Aggregate Bond index 0.2%.

At long last…maybe? After a month of open warfare followed by two months of a tentative and at times fragile ceasefire, the US and Iran agreed to work towards a comprehensive peace plan, bringing a sigh of relief to global financial markets, particularly energy markets. June also marked the first Federal Open Market Committee (FOMC) meeting with Kevin Warsh serving as Fed Chair. The post-meeting statement along with his press conference signaled he intends to bring noticeable change to the venerable institution. Equity markets continued to swing between excitement about all things artificial intelligence (AI) related, and concern about AI stock valuations and the unprecedented levels of cash being spent by companies on AI infrastructure.

In mid-June, the US and Iran agreed to a 14-point Memorandum of Understanding (MOU), designed to facilitate a lasting peace deal. Under the terms of the MOU, the US agreed to end its naval blockade of Iranian ports; issue waivers allowing Iran to sell oil on the global markets; and unfreeze Iranian funds and assets. In turn, Iran agreed to reopen the Strait of Hormuz. Further, the MOU committed the US and Iran to work towards a lasting peace over the ensuing 60 days. Regarding Iran’s nuclear program, the MOU stated Iran “shall not procure or develop nuclear weapons,” a promise Iran has made for years. Discussions about Iran’s nuclear program will no doubt be a focus of more substantive negotiations and may yet prove to be a stumbling block to securing a lasting peace deal. News of the Strait of Hormuz reopening contributed to an 18% decline in crude oil prices over the second half of the month, with prices ending at $69.50/barrel, their lowest level since the outbreak of fighting. At the end of February, prices stood at $67/barrel.

Unfortunately, since the end of June, conditions in the Middle East have deteriorated rapidly. Following reported Iranian attacks on multiple vessels transiting the Strait of Hormuz, the US rescinded the sanctions waiver allowing Iran to sell oil on the open markets, launched fresh attacks against Iran, and on Wednesday, July 8, declared the ceasefire over. In response, Iran attacked American military facilities in the Persian Gulf region. Still unclear is whether negotiators from the two countries will continue to meet in an attempt to prevent a total collapse of the peace deal.

As expected, the Federal Reserve held rates steady at its June FOMC meeting, chaired for the first time by new Chair Kevin Warsh. Following the meeting, Warsh made it clear, both in words and actions, that he intends to drive meaningful change under his leadership. One immediate change was a significant shortening of the Fed’s post-meeting statement, from over 300 words following the May meeting, to ~130 words, along with the elimination of “forward guidance,” to which Warsh said he is opposed.

At his post-meeting press conference, when asked if the lack of forward guidance might result in greater market volatility, Warsh responded, “financial markets perform best when they react to incoming data” and “work less efficiently when they ask a question: How will the Federal Reserve react to that incoming information?” He went on to say that financial markets can be an important source of information for the Fed, but not when they are simply reflecting back to the Fed what it already said.

Wash also used his press conference to announce the creation of five task forces to focus on 1) Fed communications, 2) balance sheet policy, 3) use and reliance on existing data sources, 4) productivity and jobs, and 5) inflation frameworks. On the topic of communication, Warsh was asked if he intends to hold a press conference at the conclusion of every meeting going forward. Rather than answer directly, he said press conferences can be useful if there is something important to say. Warsh’s opposition to providing forward guidance, and hinting at fewer press conferences in the future, suggests a broader desire to be less transparent in an effort to promote greater market efficiency. Critics suggest that reduced transparency could lead to greater volatility, with investors having grown increasingly reliant on the “Fed put,” the expectation that during periods of market volatility the Fed will intervene, either in words and/or action, to calm markets.

In addition to the shortened statement, the Fed released an updated summary of economic projections (SEP), including its closely watched “dot plot,” showing numerous officials now expect the Fed’s next monetary policy action to be a rate hike, likely by year end. Consistent with his dislike for forward guidance, Warsh abstained from providing a rate forecast but encouraged his colleagues to do so. The more “hawkish” dot plot and Warsh’s comment during his press conference that the Fed “has work to do on the price stability point” had the effect of pulling forward the market’s anticipated timing of a rate hike from December to October.

Nonfarm payrolls added 57K jobs in June, half the expected 114K. May and April were revised lower by a cumulative 74K jobs. Unemployment fell from 4.3% to 4.2%, due to a 0.3% decline in the labor force participation rate leaving it at 61.5%, its lowest level since March 2021. Household survey data showed 507K lost jobs in June. However, unemployment fell, due to 720K leaving the labor force. Had the labor force remained steady, unemployment would have risen to 4.6%.

Outside of events in the Middle East, AI continued to dominate investor attention, with sentiment swinging repeatedly from exuberance to concern and back again during the month. Excitement for all things AI was exemplified by the initial public offering (IPO) of SpaceX (ticker: SPCX). Though the company currently is not profitable, it went public on June 11 with a market valuation of ~$1.8T, making it the largest IPO ever. In the days following the IPO, SpaceX briefly overtook Microsoft and Amazon to become the fourth largest publicly traded company with a market cap of ~$2.95T. By month end, however, the share price had moderated some, leaving the company with a market cap of ~$2.25T, still good for the seventh largest publicly traded company.

When investors weren’t embracing all things AI, they were seemingly fretting about elevated valuations, and the enormous sums of money companies are spending to build out their AI technologies. According to industry group IDC, aggregate AI capex spending in 2026 is expected to be ~$386, up 28% from 2025 and 64% from 2024. By 2028, spending is expected to be $632B, up another 64% from 2026 levels. Given the vast outlays, it is understandable that investors periodically question the ultimate returns on those investments. Those periods of questioning were reflected in the performance of the tech-heavy NASDAQ, which saw selloffs during the month of 7.1% and 5.2%, followed quickly by rebounds of 6.0% and 3.6%. The fact that each selloff was quickly followed by a rebound suggests overall investor demand remains strong, driven in part by the oft used acronym FOMO, fear of missing out.

Reflecting some of the near-term AI concerns, large caps (S&P 500) fell 1.1%. Small caps (Russell 2000) rose 3.6%, aided by the prospect of lower energy prices, inflation, and interest rates stemming for a Middle East peace deal. Developed international market (MSCI EAFE) returns were flat at 0.0% while emerging markets (MSCI EM) fell 1.7%.

Fixed income markets experienced a volatile month driven by elevated oil prices and attendant inflationary concerns, Middle East developments, and the Fed. The volatility was highlighted by the 10-Year Treasury yield which opened the month at 4.46%, peaked at 4.57% on June 8, and ended the month at 4.38%. Elevated oil prices and related inflation fears tied to the Iran war pushed the 30-year yield back above 5% early in the month — a key psychological threshold for traders — but by month end the long bond found considerably more equilibrium, settling near 4.87%. Kevin Warsh’s first meeting as Fed Chair delivered the single largest jolt to rates during the month. Even as the Fed held rates steady, the major takeaway was the unmistakable signal that hikes were back on the table, with Warsh vowing to restore price stability and the Fed’s own projections suggesting a rate hike by year end. That posture sent the 2-Year Treasury yield surging 14 basis points (0.14%) in a single session to 4.19% — its highest of the month and the biggest single-day jump since April 2025 — as markets repriced the entire short end of the curve. The treasury yield curve flattened noticeably month over month with the spread between 2- and 10-Year Treasuries narrowing from 0.41% to 0.28%. With inflation fears running hotter in the short-term and the Iranian conflict cooling down, the flattening happened on both ends of the curve.

Municipal bonds continued to outperform their taxable counterparts in June, with the yield on the Bloomberg 10-year muni benchmark moving in a narrow band between 2.91% and 2.97% — a fraction of the volatility seen in Treasuries over the same period. Yields month-over-month rose modestly as Treasury prices fell. That stability reflected the appeal of the tax-exempt income munis provide investors in higher brackets, sustaining demand even as the broader bond market struggled. Additionally, technical drivers around supply and cash flows kept demand elevated.

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