In July, global financial markets extended their upward momentum, supported by solid corporate earnings, accommodative monetary policies, and expectations of new fiscal stimulus. However, behind Wall Street’s record highs and the resilience of global indices, there remain signs of vulnerability linked to elevated valuations, geopolitical tensions, and uncertainty over U.S. trade policy.
Equity Markets
U.S. indices reached new all-time highs: the S&P 500 closed the month up more than 2%, while the Nasdaq gained +3.7%, driven by technology leaders, with Microsoft and NVIDIA setting fresh market-cap records. Emerging markets also delivered solid performance, supported by stronger industrial production and monetary easing, particularly in China.
In Europe, momentum was more subdued: the German DAX rose 1.7%, the French CAC 40 gained 1.4%, and the FTSE 100 advanced 4%, benefiting from a weaker sterling and the strength of defensive stocks. In Asia, performance was also positive: Japan’s Nikkei 225 closed up 2.7%, while China’s CSI 300 advanced 3.4% on the back of government stimulus measures.
Overall, however, markets are still characterized by historically elevated valuations and a growing sense of euphoria among retail investors. Overbought indicators and signs of speculative trading suggest caution: a decline below key technical levels could mark the first signs of a trend reversal.
Bond Markets
July was relatively stable for fixed income. Yields on 10-year bonds were virtually unchanged: U.S. Treasuries at 4.35%, the German Bund at 2.70%, and Italian BTPs at 3.55%. In the U.S., inflation edged slightly higher (+2.7%), while in the euro area the figure stood at 2.0% (2.3% “core”).
The trading range for U.S. yields remains between 4.21% and 4.62%: a breakout above this range could push yields towards 5%. Meanwhile, credit spreads remain at historically low levels, suggesting investors do not anticipate imminent risks of recession or widespread defaults. In this environment, the investment-grade segment looks more attractive than high yield.
Economic Policy and Geopolitics
U.S. trade policy continues to represent a source of uncertainty. The recent agreement between the U.S. and the EU avoided a trade war, but on terms unfavorable to Europe, involving new tariffs and large investment commitments. Estimates suggest these measures could reduce U.S. GDP by 1.4% in the coming years, compared with -0.4% for the global economy.
At the same time, the Trump administration reinforced its economic agenda through the “OBBBA Act,” combining tax cuts, tariffs, and pressure on the Federal Reserve to lower interest rates. The central bank, however, has maintained a cautious stance, and markets remain focused on the possibility of rate cuts in the coming months.
Currencies, Commodities, and Digital Assets
The U.S. dollar strengthened (+3.2% against a trade-weighted basket), supported by the relative resilience of the U.S. economy, weighing on the yen and sterling. The Swiss franc weakened slightly, benefiting local exporters.
In commodities, oil prices gained on stronger demand, while gold consolidated its elevated levels reached in June (USD 3,290/oz), confirming its role as a safe haven in an uncertain environment.
Digital assets were also in focus: Bitcoin rose 8.3% and Ethereum nearly 50%, buoyed by new regulations that, while restrictive in appearance, indirectly reinforce the U.S. dollar’s role as the reference currency within the digital asset ecosystem.
Outlook
Despite July’s positive market tone, the risk/return profile of risk assets remains unfavorable. Equities continue to trade at stretched valuations and remain exposed to geopolitical and trade shocks, while fixed income offers more attractive opportunities, particularly in investment-grade credit and emerging markets.
We therefore maintain a prudent approach. Portfolios should be balanced with protective instruments and liquidity in order to capture selective opportunities while avoiding excessive exposure to an environment still marked by structural uncertainty and the potential for corrections.