July 2026 Monthly Market Revie

U.S Overview

As has been the case for most of this year, market and economic sentiment have largely moved to the beat of Middle East conflict and artificial intelligence, and July was no different. The U.S.-Iran peace framework signed in June collapsed in early July, and a broad technology selloff set the tone for the rest of the month. Equity results varied widely by sector. The Nasdaq-100 dropped approximately 7%, its steepest monthly decline since March 2025. Much of that damage came from a severe semiconductor selloff. The Philadelphia Semiconductor Index shed more than 20% from its 52-week high. U.S. equities are the largest single allocation in both portfolio families, so the tech selloff was the primary drag on our portfolios in July. Strength in value-oriented sectors offset part of that loss.

The Federal Reserve (Fed) held rates steady at its July 29 meeting. The 9-3 vote exposed a growing split on the committee. The post-meeting statement was brief, as it was in June, and Warsh again declined to offer forward guidance. Bond markets reacted sharply. The 10-year Treasury yield topped 4.7%, its highest since January 2025, and the 30-year yield rose above 5.25%, a level not seen in over a decade. Investors appear to be questioning how firmly the Fed will act on inflation. This rise in yields was the largest single headwind to the bond portion of our portfolios during the month.

International Overview

Europe held up better than other developed markets in July. The STOXX 600 finished modestly higher and touched fresh 52-week highs early in the month, with defensive sectors such as utilities leading the way as investors moved away from riskier positions. Europe carries far less exposure to U.S. listed AI and semiconductor companies, which spared the region from the worst of the July selloff. The European Central Bank left its deposit rate unchanged after June’s increase, though officials indicated further tightening is possible if higher oil prices continue working their way into consumer inflation. European stability offset a portion of the drag from U.S. technology within the international allocations of both of our portfolio families.

Asian markets took the worst of the July tech selloff. Japan’s Nikkei 225 fell roughly 7% for the month, surrendering most of June’s gains as semiconductor shares dropped significantly. South Korea’s Kospi also fell steeply, with chip-heavy names such as SK Hynix and Samsung Electronics. Chinese and Hong Kong markets fared better, drawing money from investors rotating into cheaper regional alternatives.

Emerging markets had a difficult July. Higher oil prices raised import costs for energy-dependent economies, and the Asian tech selloff hit the largest emerging markets. We also saw currencies come under additional pressure as the jump in U.S. Treasury yields pulled capital toward dollar assets. The Diversified portfolios hold emerging market exposure through their international equity allocation and felt this drag directly.

What does this mean for you?

July was a difficult month for most markets. A technology-led equity selloff, a steep rise in Treasury yields, and higher oil prices following the collapse of the Iran peace framework all worked against returns at the same time. Our Diversified portfolios returned between -0.72% and -0.66% for the month, and our Fossil Free portfolios returned between -0.66% and -0.32%. Both families gave back a little ground against their benchmarks, after a strong showing in June. The Diversified Conservative Portfolio matched its benchmark exactly and remains ahead of it for the year at 5.63% against 5.10%. Our Stable Value Portfolio returned 0.30% for the month and 1.75% year-to-date, an annualized rate of 3.00%, helped by laddered FDIC-insured CDs and short-duration U.S. Treasuries. The purpose of the Stable Value Portfolio is to allow short-term or rainy-day funds to keep pace with inflation while staying liquid. It did its job in July, avoiding both the equity selloff and the long-term yield move that undermined the bond holdings in our other portfolios.

The bond portion of our portfolios struggled in July as Treasury yields climbed to multi-year highs. Rising yields pushed bond prices down, and this move was large enough that longer-duration holdings lost ground for the month. Bonds normally cushion portfolios when stocks fall, but that cushion was thinner in July because stocks and long-duration bonds declined together. What the Fed does next, and specifically whether September brings the rate increase markets are starting to expect, will drive bond returns from here.

What we are monitoring

AI and Semiconductor Concentration: The July selloff in semiconductor shares was a reminder of how much of the market’s recent gains have depended on a small group of companies tied to artificial intelligence. The market has become more sensitive to valuations and to any news that questions the pace of AI spending. Our portfolios hold these companies through broad index funds rather than concentrated positions, which limits the damage when a single subsector corrects. We are watching whether the July decline was a healthy adjustment in an overheated corner of the market or the start of something broader.

U.S.-Iran Military Conflict: U.S. forces resumed strikes on Iran on July 8, and fighting picked up on several fronts, including Houthi attacks on Red Sea shipping. Saudi Arabia has proposed a multinational naval coalition to protect shipping through the Strait and the Red Sea, though it is too early to say whether that effort will hold. As the conflict continues, elevated energy prices will continue to burden the American people and could eventually lead to a decline in economic activity.

Federal Reserve Policy: Three of twelve voting members wanted to raise interest rates in July, and markets have begun pricing real odds of an increase in September. That would be the first-rate hike since 2023 and a clear change of direction for a Fed that has spent much of last year signaling rate cuts. The reversal in the expected trajectory of the Federal Reserve rate decision is largely driven by the economic effects of the U.S.-Iran conflict. Such expectations of interest rate hikes have increased yields, thus lowering prices on bonds we already hold, which is what hurt the fixed income portion of our portfolios in July. The same rates work in our favor inside the Stable Value Portfolio, where maturing certificates of deposit are reinvested at better terms. We are watching the September meeting closely, along with whether the recent rise in oil prices continues to push consumer inflation higher.

Thank you for your continued trust and support. It is our privilege to serve as stewards of your financial assets.

Sincerely,

The Faith Foundation Team