This market update highlights key developments across equities, fixed income, and the broader economic landscape as we move past mid-year.
Equities – The Index Barely Moved, but Beneath the Surface the Rally Broadened
July’s headline numbers tell a misleading story, and understanding why is the key to understanding the month. The S&P 500 returned -0.06%, essentially flat, marking a second consecutive quiet month after the powerful spring rally. But beneath that headline, the market was far healthier than it appeared: nearly 300 of the 500 companies in the index actually rose during the month, and the equal-weighted version of the index, which treats every company the same regardless of size, gained about 1.1%. What held the headline number back was a sharp pullback in the semiconductor stocks that had led the market all year, which we discuss in detail below. In other words, the average stock had a good month; a handful of very large chip companies did not. We view this kind of rotation as constructive. Markets that broaden out beyond a narrow group of leaders tend to rest on firmer footing than markets dependent on a single theme. Smaller U.S. companies, as measured by the Russell 2000, returned -3.08% for the month. International results were mixed: developed international markets (MSCI EAFE) gained 1.64%, outperforming the U.S. for the month, while emerging markets returned -3.31%, weighed down by their heavy exposure to the Asian chipmakers at the center of the selloff. The MSCI ACWI, which tracks stocks across the globe, returned 0.08%.
Spotlight: The Chip Sector Cools Off – A Sharp Pullback in Memory and Processor Stocks After an Extraordinary Run
After leading the market for most of the year, semiconductor stocks fell sharply in July. The main semiconductor index declined more than 20%, its worst month in over two decades, and the memory chip makers we have highlighted in recent letters, Micron, SK Hynix, and Samsung, each fell more than 20% from their recent highs. The processor makers AMD and Intel pulled back sharply as well. It is worth being specific about what drove this, because the reasons matter for how investors should think about it. The selling was triggered not by weak results, but by worries about the future: a Chinese memory manufacturer completed a blockbuster stock offering that stoked fears of future oversupply, a prominent investor disclosed a bet against Micron and argued the rally had become historically stretched, and a major chip manufacturer’s spending outlook raised questions about the pace of artificial intelligence investment. Notably, the actual business results released during the month remained strong. Intel reported revenue up 25% from a year earlier with its data-center business growing 59%, and Micron’s most recent quarterly results and forward guidance remained exceptional. This is the important distinction: what changed in July was the price investors were willing to pay for these businesses, not the underlying performance of the businesses themselves. After the extraordinary gains of the past year, some air coming out of valuations is neither surprising nor, in our view, unhealthy. The demand fundamentals we described in prior letters, particularly the persistent shortage of high-bandwidth memory that industry participants expect to last into 2027, remain intact.
Bonds – Yields Rose, Keeping Income Opportunities at Multi-Year Highs
Treasury yields moved higher in July. The 10-year U.S. Treasury yield ended the month at 4.73%, up meaningfully from June’s close and its highest level since early 2025, while the 2-year yield finished at 4.29%. The rise reflected a combination of factors: inflation readings that, while improving, remain above the Fed’s target, heavy government borrowing, and some investor caution as the new Fed leadership establishes its approach. The Bloomberg U.S. Aggregate Bond Index returned -1.30% for the month. Corporate credit remained notably calm through the equity volatility, with the extra yield investors demand to hold high-quality company debt sitting near its lowest levels in twenty years, a sign that bond investors see little stress in corporate America. For income-focused investors, the message continues to be a constructive one: yields at these levels represent some of the most attractive entry points for high-quality bonds in years, and the income they generate provides a genuine cushion for portfolios during months, like this one, when parts of the equity market turn volatile.
The Federal Reserve – Steady Rates and an Encouraging Inflation Report
The Federal Reserve held interest rates steady at 3.50% to 3.75% at its late-July meeting, the fifth consecutive hold, in an unremarkable decision that markets had fully anticipated. Three committee members preferred a small increase, reflecting the range of views on how quickly inflation will return to target, but the committee’s center held firmly to patience. The more meaningful news came from the inflation data itself. June’s consumer price report, released in mid-July, was genuinely encouraging: overall prices fell 0.4% during the month, the largest one-month decline since April 2020, bringing the annual rate down to 3.5% from 4.2%. Energy prices drove the improvement, falling 5.7% as oil retreated from its spring highs, and core inflation, which excludes food and energy, ran at a moderate 2.6% annual pace. This is the pattern we have described in prior letters playing out as expected: the inflation surge of 2026 has been overwhelmingly an energy story, and as energy normalizes, the headline numbers follow. We continue to expect the Fed to remain patient rather than move rates in either direction in the near term, holding steady while the energy-driven distortions work their way out of the data. Overseas, the European Central Bank and the Bank of England both held their rates steady as well.
The Economy and Global Events – A Cooling but Stable Economy, with Energy Markets Volatile but Contained
The economic data released in July showed an economy that is cooling but not contracting. Employers added 57,000 jobs in June, a slower pace than earlier in the year, and the unemployment rate ticked down to 4.2%. Second-quarter economic growth came in at a 1.5% annualized rate, down modestly from the first quarter. Retail sales continued to grow, and both the manufacturing and services sectors remained in expansion, with the services reading of 54.0 marking a healthy pace. Consumer confidence, as measured by the Conference Board, softened slightly to 90.8 in July from 92.2 in June, though it remains well within its recent range. The Middle East remained a source of headlines during the month, with renewed tensions between the United States and Iran pushing oil prices higher, with WTI crude finishing the month near $85 per barrel. We would note two things for perspective. First, even after July’s rise, oil remains well below the peaks reached during the spring, and the trajectory since then has been one of gradual normalization punctuated by temporary flare-ups. Second, the situation has continued to evolve constructively since month-end, with markets responding favorably in early August to renewed progress on reopening shipping lanes. As we have said in prior letters, we expect this situation to work itself toward resolution over time, and the sharp declines in oil from the spring peaks suggest markets increasingly share that view.
Bottom Line – A Healthy Rotation Beneath a Quiet Surface
July looked uneventful on the surface and was anything but underneath, in mostly encouraging ways. The market’s gains broadened well beyond the narrow group of technology leaders that drove the first half of the year, with the average stock rising even as the headline index paused. The chip stocks that pulled back did so because of concerns about valuations and future supply, not because their businesses deteriorated; the results those companies actually reported remained strong. Inflation delivered its most encouraging report in over a year, confirming that the energy-driven price surge is unwinding as energy markets normalize. And bond yields at multi-year highs continue to offer income opportunities that were unavailable for most of the past fifteen years. The first days of August have already seen markets return to record highs as the geopolitical picture improved, a useful reminder that patience through choppy stretches is consistently rewarded. Our approach remains unchanged: portfolios built on quality companies, genuine diversification across sectors, sizes, and geographies, and bonds generating real income are exactly the right structure for this environment, and this month’s rotation into a broader set of winners is precisely why that diversification matters. As always, we welcome the opportunity to discuss how these developments relate to your specific financial plan.
Disclosure
This material is provided by Gryphon Financial Partners, LLC (“Gryphon”) for informational purposes only. It is not intended as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Facts presented have been obtained from sources believed to be reliable, though Gryphon cannot guarantee their accuracy or completeness. Gryphon does not provide tax, accounting, or legal advice. Individuals should seek such guidance from qualified professionals based on their specific circumstances.