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4 Aug 2026 | 3 minutes to read
(All equity data is MSCI; all data in sterling unless stated)
Global stock markets experienced a particularly turbulent week. Major US indices, including the S&P 500 and Nasdaq, advanced overall, but not without sharp swings as markets reacted to corporate earnings releases.
The week got off to a shaky start, with technology and artificial intelligence (AI) related stocks coming under pressure. The sell-off reflected ongoing concerns in some quarters over the sustainability of substantial AI investment. Whether this ultimately delivers returns which justify the capital outlay remains a key question for investors. Semiconductor and other high-growth technology shares bore the brunt of this uncertainty.
Importantly, weakness in technology did not translate into broader market weakness. Instead, investors seemingly rotated into more defensive sectors - or stocks broadly characterised as ‘value’ rather than ‘growth’ - including consumer staples and financials. This broadening of market leadership helped propel the UK’s FTSE 100 to a fresh all-time high.
Technology sector sentiment improved later in the week following Microsoft's earnings announcement. The company delivered results well ahead of expectations, with strong growth in its cloud computing platform, Azure, and robust demand for AI services. Microsoft shares surged 15% on Thursday, adding a record $450bn to its market value in a single day, and sparking a broad rally across global technology and semiconductor stocks.
Nowhere was the technology rebound more dramatic than in South Korea, where the KOSPI index surged an extraordinary +17.9% on Friday as dominant constituents, Samsung Electronics and SK Hynix, led a sharp rebound. Despite the spectacular rally, the earlier sell-off meant the index still closed down -1.4% for the week, while it remains below recent highs following an exceptionally volatile month.
Overall, the week demonstrated both the challenges and opportunities investors face in today's market environment. While uncertainty surrounding AI investment and interest rates continues to drive short-term market swings, corporate earnings and economic fundamentals remain broadly resilient.
Most importantly, the week's events served as a timely reminder that successful investing is built on discipline and patience. Market volatility is an inevitable part of the investment journey, but history has consistently shown that maintaining a long-term perspective and staying focused on a well-constructed financial plan is often the most effective way to navigate uncertainty and achieve investment objectives.
The US Federal Reserve (Fed) again voted to hold its key interest rate steady last week. However, the decision was not unanimous amidst inflation concerns. The rate setting Federal Open Market Committee (FOMC) voted 9-3 in favour of leaving rates in a range between 3.5% and 3.75%. It was the fifth consecutive Fed meeting without a policy change. Although the hold was largely expected, the three dissenting voters were all in favour of hiking rates by a quarter of a percentage point, giving the decision a hawkish feel. Impatience at stubbornly above target inflation is seemingly increasing amongst officials.
Fed Chair, Kevin Warsh, has argued for less in the way of “forward guidance” since taking office. He gave little away at the post-meeting press conference, reiterating his preference for scaled-back Fed communication. Although he did state that the bank would take all necessary steps to meet its 2% inflation goal. US inflation has been running above target for more than five years. And, given the ongoing and volatile situation in the Middle East, some observers felt a pre-emptive rate hike could be on the cards.
Recent US inflation figures have offered some encouragement, however. And shortly after the Fed decision, the central bank’s preferred measure of inflation - the personal consumption expenditures (PCE) price index - posted a 0.1% decline month-over-month in June, with annual headline PCE inflation easing to 3.7% from 4.1%. Warsh acknowledged the "impatience" of households and businesses over high prices, but warned there was “no magic wand”. The difference between short-term and long-term US government borrowing costs increased after the decision. The two-year bond yield fell as expectations of a rate increase in 2026 declined a little, while the 30-year yield jumped to 5.2% - the highest level since 2007. This perhaps reflects greater uncertainty around the Fed’s plan and ability to rein in inflation given the more limited communication. Warsh has nonetheless been notably resolute when questioned on his commitment to price stability, repeatedly stressing the importance of getting inflation in check during recent congressional hearings.
On US economic growth, the Fed again pointed to resilient activity against a backdrop of elevated uncertainty, noting the economy was “expanding at a solid pace”. However, a second significant data release in the wake of the rate decision indicated a surprise slowdown, despite an increase in consumer spending. The Commerce Department reported US growth slowing to 1.5% in the second quarter, down from 2.1% over the first quarter. Consensus forecasts had been for growth to remain around 2%. Most economists still view the US economy as being in a healthy state, however. A strong economy should be able to weather higher interest rates. Markets currently price 1.5 - 2 quarter percentage point hikes over the next 12 months, although pricing can move quickly given volatile geopolitics.
The Bank of England (BoE) followed suit and also left interest rates unchanged last week, maintaining the base rate at 3.75%. The Bank remains in a cautious wait-and-see mode, although concerns around energy price pressures saw an increase in the number of dissenting voices on the rate setting Monetary Policy Committee (MPC). A hold had been anticipated following the drop in headline consumer price index (CPI) inflation to 2.6% in the year to June, a 15-month low. Although likely to prove a temporary reprieve, UK inflation has undershot the BoE’s prior forecasts of late.
The MPC voted 6-3 in favour of keeping rates unchanged, with the three dissenting voices all adopting a more hawkish stance and voting for a 0.25% hike. The previous vote had seen a 7-2 split along the same lines. As in the US, UK inflation has remined above target for around five years, and some policymakers argued for a “proactive” rate hike to reduce the chances of the energy price shock developing into more entrenched inflationary pressure. Nevertheless, BoE governor, Andrew Bailiey, cautioned against assuming the Bank was edging towards a hike. While market pricing indicates a rising path for UK interest rates, Bailey noted that this was reflective of the risk to energy prices being skewed to the upside, rather than the Bank’s central expectations.
The BoE’s decision and subsequent messaging saw market odds of a near-term rate hike reduce. Short-term government borrowing costs, which are more sensitive to interest rate expectations, fell, while longer-term gilt yields rose – reflecting the upside risks to inflation. The BoE currently expect inflation to rise to 3.2% in 2026, before falling back in 2027 and finally dipping below the 2% target in 2028. Although clearly much depends on the path of events in the Middle East.
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