July 2026 Market Review: UK Leads as a Tech Sell-Off And Rotation Into Value Dominate

July was a rather distinct month. It opened with geopolitics in the driving seat, as escalating tensions between the US and Iran briefly pushed Brent crude above $100 a barrel and lifted energy and the wider commodity complex. As those fears eased, attention swung back to second-quarter earnings and, above all, to whether the enormous sums being spent on artificial intelligence will earn a decent return. The answer markets settled on was to become far more selective, with many AI beneficiary and semiconductor stocks experiencing choppiness, and that weakness, spearheaded a decisive rotation out of growth stocks and into value.

The result was a gap in fortunes throughout July. The UK, with little technology and plenty of energy and banks rallied, while the technology-heavy US and emerging markets crumbled. Meanwhile, bond yields rose across the board on renewed inflation risks.

Equities: Rotation From Growth to Value

The defining feature of the month was a rotation away from the AI winners that had led markets higher. A handful of the biggest hyperscalers proved resilient, but semiconductor names and other AI beneficiaries came under real pressure as stretched valuations, worries over export controls and China's technological progress weighed on sentiment. Forced selling by the known backer of AI hedge fund, Situational Awareness amplified the move. 

The world’s most valuable chip stocks had more than a trillion dollars wiped from their markets caps. The Philadelphia semiconductor index (SOX), which tracks the 30 largest U.S.-traded companies involved in the chip sector experienced a 20% peak to trough fall in July. Moreover value focused sectors such as energy performed admirably with the MSCI World Energy Index up more than 10% in July.

The UK was the standout amongst developed markets and across equity markets in general. The FTSE 100 rose 3.5%, significantly outperforming most other major developed market equity indices. The FTSE’s low weighting in technology and heavy exposure to energy and financials, so often a drag in recent times, worked firmly in its favour. US equities told the opposite story. Despite a strong earnings season, with 85% of reporting companies beating expectations and earnings on track to grow around 36% year on year, the S&P 500 finished lower. 

For the largest technology names, simply beating forecasts was not enough. Investors wanted evidence that ever-rising AI capital spending would generate an attractive return, and were unwilling to pay up without it. Beneath the surface, earnings growth remained highly concentrated, with technology and communication services accounting for around three-quarters of the index's total.

The weakest overall equity returns came from technology focused emerging markets, where the impact of the semiconductor sell-off was most intense. SK Hynix fell 35% and Samsung 21%, dragging South Korea down over 15% for example. The MSCI Emerging Markets Index fell over 3.0%. Japan was mixed, the broad TOPIX finishing roughly flat while the technology-heavy Nikkei 225 fell around  8%. Continental European equities however, were broadly flat, sitting between the UK and the US in terms of sector exposure.

Fixed Income: Yields Rise as Inflation Risk Returns

Bonds had a difficult month. Government bond yields rose across developed markets as the jump in energy prices in particular prompted investors to reconsider the outlook for inflation and interest rates. As bond prices move inversely to yields, that meant losses for existing holdings, and the Bloomberg Global Aggregate Bond Index fell 0.5% over the month. Both gilts and US Treasuries across the board fell as well. 

The major central banks all left policy unchanged, but the tone was broadly hawkish, reinforcing the sense that rates will stay higher for longer. Markets are now pricing in the risk of further hikes from several central banks over the coming year. In the US, both two-year and 10-year Treasury yields rose as investors repriced the likely path of policy, even as inflation continued to moderate.

On the domestic front, with Andy Burnham having taken over as Prime Minister following his Makerfield by-election win, the political backdrop was relatively calmer for now and Westminster had little bearing on markets.

Oil Spikes Then Settles

Oil set the tone at the start of the month. Escalating tensions between the US and Iran briefly drove Brent crude above $100 a barrel, its highest in months, as markets feared fresh disruption to Middle Eastern supply. That spike rippled through the wider commodity complex, which gained around 7% over the month, and gave energy shares a powerful boost. As the immediate fears eased, prices came off their highs but stayed elevated, leaving Brent up firmly over the month and energy the top performing sector.

This latest episode was a reminder of how quickly geopolitics can reassert itself over markets and, just as importantly, of the threat higher energy prices pose to the inflation outlook just as it had appeared to be improving. The situation remained fluid towards the end of the month, with the path of prices from here hinging on whether tensions escalate again or ease further.

UK Inflation Cools

Inflation came in softer than expected. CPI eased to 2.6% in the year to June, down from 2.8% in May and below the 2.7% economists had pencilled in. The cost of raw materials dipped mainly due to a lower crude price. Services inflation, the stickier measure the Bank of England watches most closely, edged down only slightly to 3.6% from 3.7%, and factory input costs slowed. Food and housing cost growth also cooled over the month.

Welcome as the cooler print is, it rests on shifting ground. The Bank expects inflation to rise later this year as higher energy prices pass through. In its July Monetary Policy Report, the Bank's central projection showed CPI peaking at around 3.2% in the final quarter of the year, and the MPC judged that the risks to that outlook are tilted to the upside, while cautioning that events in the Middle East could change the picture.

Against that backdrop the Bank of England held Bank Rate at 3.75% on 30th July, its fifth consecutive hold, but the vote split narrowed to 6-3 as a third member joined the calls for a quarter-point rise to 4%. Governor Andrew Bailey pointed to continued underlying disinflation, noting that services inflation had fallen from 4.5% in March to 3.6% in June, but noted the short-run path of inflation was uncertain. With the hawkish minority having grown across successive meetings, markets are still pricing in the possibility of a rise later this year.

The Portfolios

For the Smart Portfolios, July was a month where diversification earned its keep. The rotation from growth to value cut both ways. Exposure to the AI and technology names that had led markets higher was a drag as semiconductors sold off, but that was cushioned by the portfolios' broad geographic and sector spread, with UK and value-oriented holdings, particularly energy and financials, holding up better. 

Overall July was a challenging month for the portfolios, they underperformed and were dragged down by a month-wide rotation out of technology and growth assets. The biggest hit came from emerging market equity, as the global semiconductor sell-off hit the region hardest. Japanese and small-cap equities also fell, and US exposure was modestly negative as the market finished broadly flat, with sterling strength adding to the drag on unhedged dollar holdings. Bonds offered little cover, as rising developed market yields left most holdings in the red. The one clear bright spot was UK equity, where the FTSE 100 rose 3.7%, but with equities and bonds falling together there were few places to hide. Even gold sold off marginally.

The Smart Portfolios provide professionally managed, risk-profiled discretionary managed portfolios using BlackRock's iShares ETFs across five options from Conservative to Aggressive, matching different time horizons and risk tolerances. Automatic rebalancing maintains target allocations, whilst costs significantly below traditional active funds compound meaningfully over time. The portfolios are available in ISA and SIPP structures for tax efficiency.

Sources: Bloomberg, FTSE, LSEG Datastream, MSCI, ONS, Bank of England (all data as at 31 July 2026)

Past performance is no guarantee of future returns. Capital is at risk. Tax treatment depends on individual circumstances and may be subject to change in the future. This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

1. The value of your investment and income from it can fall as well as rise and you could get back less than the amount you initially invest. The returns of investments made in currencies other than GBP will be affected by changes in exchange rates. Two main risks of fixed income investments are interest rate risk and credit risk. Typically, when there is a rise in interest rates, the value of fixed income investments falls. If the issuer of the fixed income instrument defaults on the payments due to the ETF, this will negatively affect performance. Commodity investments and emerging market investments are generally associated with high investment risk; the value of these investments may be unpredictable or subject to liquidity constraints where they cannot be sold easily or at a price considered to be fair. For more details about the ETFs held in your IG Smart Portfolio, you can access the ETF specific tear sheet on the platform or you can read the Key Investor Information Document (KIID) for each ETF
2. The BlackRock portfolio returns are sourced from BlackRock, and IG gives no guarantees as to their accuracy. IG Smart Portfolios are designed to replicate the BlackRock model portfolios, but exact tracking is not guaranteed, nor is it a goal of IG. IG client performance may be better or worse than the BlackRock models.
3. Past performance is no guarantee of future returns, all returns are in GBP.
4. The information provided in this presentation should not be relied upon as investment advice, research, or a recommendation by IG regarding (i) the iShares Funds, (ii) the use or suitability of the model portfolios or (iii) any security in particular. Only an investor and their financial advisor know enough about their circumstances to make an investment decision.

iShares® and BlackRock® are registered trademarks of BlackRock, Inc. and its affiliates ("BlackRock") and are used under license. Further, BlackRock, Inc. and its affiliates including, but not limited to, BlackRock Investment Management (UK) Limited, are not affiliated with IG Markets Limited and its affiliates. Accordingly, BlackRock makes no representations or warranties regarding the advisability of investing in any product or service offered by IG Markets Limited or any of its affiliates. BlackRock has no obligation or liability in connection with the operation, marketing, trading or sale of any product or service offered by IG Markets Limited or any of its affiliates.