U.S. large-cap stocks, as proxied by the S&P 500 Index, were flat in July, declining 0.1%,while U.S. small-cap stocks declined by 3.0% over the month. U.S. intermediate-term bonds ended the month down 1.3%.
With more than 88% of S&P 500 companies reporting, second-quarter earnings growth has reached 50.4%, the strongest since 2021, while profit margins are on track to hit a record 16.9%.
Hyperscalers continue to raise their AI spending, but investors are increasingly rewarding companies with clear demand, growing backlogs, and a credible path to monetization.
The Federal Reserve held rates steady, but a hawkish three-member dissent, alongside new Chair Kevin Warsh’s move away from forward guidance, has introduced policy uncertainty.
Strong demand has reinforced the case for the AI buildout, shifting investor attention to whether today’s unprecedented spending levels can generate durable earnings growth and attractive long-term returns.
With earnings growth still broad and bond yields more attractive, we continue to favor diversification across the AI buildout—and beyond it.
July 2026 Commentary: Spender’s Dilemma
Summary
Read and download the commentary here.
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