U.S. equity benchmarks were mixed in July as a sharp selloff in the largest technology and growth companies offset gains in value stocks and the average company. The S&P 500 finished roughly flat, the Nasdaq-100 fell 6.6 percent, and beneath the surface the market rotated decisively from growth toward value. Treasury yields rose across the curve, lifting the 30-year yield to its highest level in nearly two decades, while a divided Federal Reserve held rates steady and drew three dissents in favor of a hike. Oil reversed June's decline and surged more than 20 percent as the Iran conflict re-escalated, reviving concern about energy-driven inflation.

Headline CPI fell 0.4 percent in June on a seasonally adjusted basis, its largest one-month decline since April 2020, and the annual rate eased to 3.5 percent from 4.2 percent in May. Energy drove the move, with the energy index down 5.7 percent after a 3.9 percent rise in May. Core CPI, which excludes food and energy, was essentially unchanged for the month and slowed to 2.6 percent year over year from 2.9 percent, evidence that the earlier energy shock had not broadened into underlying prices.

Whereas the Fed's favored gauge, PCE, told a similar story, the headline PCE price index declined 0.1 percent in June, its first monthly drop since April 2020, and the annual rate eased to 3.7 percent from 4.1 percent in May. Core PCE rose 0.1 percent for the month, down from 0.3 percent in May, and slowed to 3.3 percent year over year from 3.4 percent. Both readings remained above the Federal Reserve's 2 percent target.

Data for July CPI and July PCE was not yet available from approved sources at the time of writing. July CPI is scheduled for release on August 12 and July PCE on August 26. These readings will be incorporated when official figures are published.

Real GDP grew at an annualized 1.5 percent in the second quarter of 2026, according to the BEA's advance estimate, down from 2.1 percent in the first quarter and below consensus expectations of around 2 percent. Growth was led by consumer spending, business investment, and exports, partly offset by a decline in government spending and a larger drag from imports. Residential investment rose 1.5 percent, its first increase in six quarters.

The report's price data was firm. The gross domestic purchases price index rose 5.7 percent and the PCE price index within the report rose 5.1 percent, a reminder that the energy-driven inflation impulse remained live during the quarter even as monthly consumer prices cooled by June.

For the third quarter, the Atlanta Fed's GDPNow model projected 6.2 percent annualized growth as of August 3, up from 5.0 percent on July 30, with the increase following stronger manufacturing and construction data. The elevated reading points to firm momentum entering the second half of the year, though early-quarter GDPNow estimates typically carry wide margins.

The Federal Reserve held its federal funds target range at 3.50 to 3.75 percent at its July 28 to 29 meeting, a fifth consecutive hold and the second under Chairman Kevin Warsh. The decision was not unanimous. Three regional Federal Reserve presidents, Beth Hammack of Cleveland, Neel Kashkari of Minneapolis, and Lorie Logan of Dallas, dissented in favor of a 25 basis point increase. It was the first time since September 2016 that three policymakers dissented with a unified preference on the direction of rates.

Warsh kept the post-meeting statement brief and free of forward guidance, describing the economy as expanding at a solid pace and flagging inflation, driven in part by Middle East energy prices, as the primary risk. He characterized the divided vote as a healthy debate and noted that the cooler June inflation data did not weigh heavily on the decision to hold.

Market expectations for the September meeting shifted sharply in early August. Before the July employment report, the CME FedWatch Tool had assigned better-than-even odds to a 25 basis point increase in September. After payrolls unexpectedly fell, those odds dropped to roughly 44 percent as of August 7, and most traders moved toward expecting a hold. The next FOMC decision is scheduled for September 15 to 16.

The ISM Manufacturing PMI registered 55.6 percent in July, up 2.3 percentage points from June's 53.3 percent and the highest reading since May 2022. The result marked a seventh consecutive month of expansion in the manufacturing sector, and the overall economy expanded for a 21st straight month.

Underlying components strengthened broadly. New Orders rose to 56.7 percent from 56.0 percent, and Production jumped 6.3 points to 58.5 percent, its highest level since November 2021. The Employment Index rose to 52.8 percent from 49.7 percent, moving into expansion for the first time in 33 months. The Prices Index eased for a third straight month to 71.1 percent from 73.0 percent, though it remained elevated. Fifteen of 18 industries reported growth, up from 14 in June.

The July employment report, released August 7, showed the labor market weakened sharply. Nonfarm payrolls fell by 23,000, the first monthly decline in months and well short of the consensus estimate of roughly 85,000. The drop reversed a downwardly revised gain of 20,000 in June.

Revisions to prior months deepened the weak picture. The May gain was revised down by 66,000 to 63,000 and the June gain was revised down by 37,000 to 20,000, leaving employment over the two months a combined 103,000 lower than previously reported.

The unemployment rate edged down to 4.1 percent from 4.2 percent in June, but the decline reflected a shrinking labor force rather than stronger hiring. The labor force participation rate fell to 61.4 percent, its lowest level in more than five years. Average hourly earnings rose 2 cents to $37.62 and were up 3.2 percent over the year, a deceleration from 3.5 percent in June.

U.S. equity benchmarks were mixed in July, and the flat headline for the S&P 500, up 0.1 percent, concealed a sharp divide beneath the surface. The Nasdaq-100 fell 6.6 percent and the Nasdaq Composite declined 3.2 percent as a selloff in semiconductors and artificial intelligence infrastructure names, together with an unwind of the crowded momentum trade, hit the largest technology companies hardest. Small and mid caps also fell, with the Russell 2000 down 3.0 percent and the S&P MidCap 400 down 2.4 percent.

The gap between cap-weighted and equal-weighted indexes pointed to unusually narrow weakness rather than broad selling. The S&P 500 Equal Weight index rose 1.0 percent even as the cap-weighted S&P 500 was flat, a sign that the average stock advanced while a small group of mega-cap names drove the decline. Developed markets slipped modestly on the month, while emerging markets fell 3.0 percent.

Style leadership rotated sharply from growth to value. The Russell 1000 Value index rose 3.8 percent while the Russell 1000 Growth index fell 4.8 percent, a swing of more than eight percentage points from the growth-led conditions of prior months. The pattern held among smaller companies, where the Russell 2000 Value index was flat and the Russell 2000 Growth index fell 5.9 percent. The rotation ran along the growth to value axis rather than by company size, as both large and small growth names lagged.

S&P 500 large-cap sector performance confirmed the rotation. Energy led all eleven sectors with a 12.6 percent gain as crude prices surged, followed by Financials at 6.2 percent. Rate-sensitive and defensive value areas also advanced, with Real Estate up 2.5 percent, Health Care up 2.4 percent, and Consumer Staples up 2.1 percent. Consumer Discretionary and Communication Services posted smaller gains of 0.8 percent and 0.6 percent. The laggards were Technology at negative 3.4 percent, Industrials at negative 3.0 percent, Utilities at negative 2.2 percent, and Materials at negative 1.7 percent. The updated July sector chart reflects these figures.

Treasury yields rose across the curve in July, reversing June's decline and reflecting the tension between a hawkish Fed and firmer inflation expectations. The 30-year yield climbed 36 basis points to 5.27 percent, around its highest level since 2007. The 10-year yield rose 31 basis points to 4.75 percent. At the front end, the 2-year yield rose 14 basis points to 4.28 percent and the 1-year yield rose 10 basis points to 4.08 percent. A rebound in oil prices and the Fed's firm tone lifted term premium and pushed longer-dated yields higher.

Bond index returns turned negative across every major segment, reversing June's gains as rising yields pressured prices. Municipal bonds were the weakest at negative 1.9 percent, followed by Corporate bonds at negative 1.7 percent and the broad U.S. bond market at negative 1.3 percent. U.S. Treasury bonds fell 1.1 percent. High-yield corporate bonds were the most resilient at negative 0.3 percent, cushioned by higher carry and shorter effective duration.

Credit spreads remained historically tight despite the rate volatility. The option-adjusted spread on investment-grade corporate bonds held near 81 basis points at the end of July, close to its June level and in the bottom decile of post-financial-crisis readings. The high-yield option-adjusted spread stood near 284 basis points, modestly wider than the roughly 278 basis points that prevailed in late June. Spreads this tight leave limited cushion to absorb shocks but signal little near-term concern about defaults.

Oil reversed sharply higher in July after two months of decline. WTI crude rose roughly 22 percent to settle near $85 per barrel, and Brent gained about 24 percent to near $90, the strongest monthly performance for both since March. The rally followed a re-escalation of the Iran conflict after June's ceasefire broke down. U.S. forces resumed strikes on Iranian targets, renewed Houthi activity in the Red Sea and a drop in U.S. crude inventories added to supply concern, and the return of a geopolitical risk premium fed directly into the inflation and rate outlook.

Precious metals were mixed to modestly higher. Gold stabilized after June's steep decline, ending the month near $4,050 per ounce in spot terms, a gain of roughly 1 percent, as safe-haven demand from the Iran conflict and continued central bank buying offset the drag from higher real yields and a firmer U.S. dollar. Silver outperformed, ending near $60 per ounce after starting the month closer to $58.50, supported by expectations for sustained industrial demand.