July was a month in which the headline numbers told only part of the story. The S&P 500 slipped 0.13% for the month, yet beneath that modest headline loss, market breadth was healthy: a majority of S&P 500 constituents finished the month higher, and the equal-weighted version of the index, which gives the same fixed weight to each of the 500 companies in the standard S&P 500, rose more than 1%. The gap between the cap-weighted and equal-weighted results points to one clear culprit — a sharp selloff in semiconductor stocks, led by heavy losses in companies like Micron Technology, Intel, and KLA Corp. This downturn was driven by growing investor anxiety over high artificial intelligence spending and cooling market enthusiasm after massive gains earlier in the year.
The PHLX Semiconductor Sector Index tumbled more than 20% in July, dragging the tech-heavy Nasdaq-100 down nearly 7% and the broader Nasdaq Composite down more than 3%. The Dow Jones Industrial Average told a very different story. Thanks to its price-weighted construction and heavier tilt toward industrials, financials, and blue-chip defensives, the Dow eked out a small gain of 0.32% in July. The chart below shows how differently the broader markets performed versus the “momentum” stocks in the technology sector for the month of July. But even with the month’s drop, the PHLX Semiconductor Sector Index is still up over 59% for the year as of the end of July.
Although the Investment Management team raised modest cash positions in several strategies during the final week of July in response to weakness in growth and technology stocks, those funds are now being redeployed as the equity markets have been rallying in early August. The portfolios remained largely fully invested throughout July, as the broader market, value stocks, and certain areas of foreign markets demonstrated resilience despite notable weakness in growth and technology stocks.
Geopolitical developments also contributed to volatility. Oil prices swung sharply in response to changing expectations surrounding the conflict between the United States and Iran and the security of shipping through the Strait of Hormuz. Oil ultimately recorded its largest monthly increase since March, renewing concerns that higher energy costs could slow the economy while keeping inflation elevated. This combination was particularly important for both stocks and bonds because persistent energy inflation could make it more difficult for the Federal Reserve to lower interest rates.
The Federal Reserve provided another major turning point. At its July 29 meeting, the Fed left the federal funds rate unchanged. Three voting officials dissented in favor of a quarter-percentage-point increase, an unusually divided decision that underscored policymakers’ concerns about inflation. Investors interpreted Chairman Kevin Warsh’s comments as a “hawkish hold”—no immediate rate increase, but a willingness to tighten policy if inflation remained persistent. Stocks fell sharply following the decision before rebounding on strong technology earnings during the final two sessions of the month. The 30-year Treasury yield pushed above 5.2%, a level not seen since 2007. The move was driven by a combination of factors, including a Federal Reserve that signaled it is in no hurry to cut rates.
Market conditions will continue to change, but our investment process remains the same: stay disciplined, manage risk thoughtfully, and focus on your long-term goals. If your financial situation or objectives have changed, please contact your advisor so we can review whether your investment strategy is still the right fit.
Mary Ann Drucker
Assistant Portfolio Manager
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