Weekly Comment: “Mr Market spoke this week”

Market overview

“Mr Market spoke this week”. So said Alberto Musalem, as reported by the Financial Times. The president of the St Louis Fed, who has a seat on the Federal Open Market Committee but (this year) does not get to vote, wasn’t talking about the rise seen in global equity markets over the course of the week ended 31 July 2026. No, Musalem was commenting on the yield on 30-year US Treasuries reaching 5.28%, the highest it’s been since 2007. According to Musalem, the US Treasury market is sending a signal to the Federal Reserve (Fed): the central bank is in danger of losing credibility when it comes to tackling inflation.

The Fed’s cred

That’s not necessarily because the central bank kept interest rates within the 3.5%-3.75% range for the fifth consecutive month at Kevin Warsh’s second meeting as Fed Governor.

Or because the latest readout of the personal consumption expenditures (PCE) price index continued to show inflation well ahead of the Fed’s 2% target. The headline PCE number came in at 3.7% for June on a year-on-year basis (YoY). While this is a 0.1% reduction compared to May, June did cover the signing of a Memorandum of Understanding (MoU) between the US and Iran which extended the ceasefire between the two opposing sides and led to a sharp retreat in oil prices. A retreat that has since been partially undone as the fragile peace agreement proved to be, well, fragile.

Arguably what irked US Treasuries more was the lack of guidance from the Fed.  Warsh’s policy of stripping back communication to the bare minimum meant markets were given no explanation for either the thinking behind the rate decision or on how the Fed intends to get inflation back towards the 2% target. Cue Mr Market’s Fed credibility concerns.

Q2 earnings season: So far so (very) good

And yet, global stock markets didn’t appear overly concerned. What has equities got that bonds don’t have? The Q2 corporate earnings season. 61% of companies listed on the main US index had reported as at 31 July 2026, according to FactSet. Of these 86% delivered a positive earnings (per share) surprise, while 77% reported better-than-expected revenues.

The data provider now estimates the blended YoY earnings growth rate for the main US stock market at 47.4% which, if hit, would be the highest rate achieved in five years — when annualised data received a major boost from base-level factors relating to the Covid-19 pandemic. Rewind back to 30 June and 23.2% earnings growth had been pencilled in for Q2. What’s more, the strong earnings performance has been broad-based with nine sectors so far reporting higher earnings compared to 30 June estimates. Good news, not just for Mr (Stock) Market, but for those with well-diversified portfolios too.

Weekly market moves:

The MSCI All Country World Index (MSCI ACWI) ended the week 1.4% higher, up 11.6% year-to-date (YTD),

United States:

The main US stock index returned to winning ways courtesy of a 1.1% gain for the week (+10.1% YTD). An impressive outcome given the ongoing, on-off conflict in the Middle East, the lack of direction over interest rates from the Fed and further volatility from AI-related names. Once again, value stocks led the way with a 1.4% gain (+20.6% YTD) while growth finished 0.6% higher (+0.3% YTD). Small caps edged up just 0.1% (+19.0% YTD).

Mixed week for US Treasuries. At the short-end, yields benefited from the Fed leaving rates unchanged: the yield on the 2-year note tickled four basis points lower to 4.29% (up 82 basis points YTD). Concerns over the Fed’s credibility were more in evidence at the longer end of the yield curve. Mention has already been made of the 30-year Treasury but the yield on the10-year Treasury also edged up six basis points to 4.74% (up 57 basis points YTD).

United Kingdom:

Another positive week for UK stocks. London’s large caps gained 1.2% (+11.5% YTD), while the mid-cap segment tacked on 0.7% (+8.8% YTD). Sterling got in on the act too, strengthening to US$1.35 from US$1.33 previously.

A relatively light week on the economic data and political front (new prime minister Andy Burnham continued to set out his policy agenda but kept this limited largely to high-level statements) meant the UK gilt market had little to get its teeth into. The yield on the 10-year UK gilt ticked up two basis points to 5.05% (up 57 basis points YTD). The Bank of England’s decision to hold interest rates at 3.75% had been expected. What was not expected was a date being set for the Autumn Budget, 28 October 2026. That’s around a month earlier than last year. So, even though budget speculation season will soon be upon us (will taxes go up again and, if so, which ones?) at least the wait will be shorter than in 2025. Thank goodness for small mercies.  

Europe ex UK:

European equities had another positive week. The MSCI Europe ex-UK Index closed 0.6% higher (+11.1% YTD), supported by better-than-expected Q2 earnings results. Also on the positive side, a 0.4% quarter-on-quarter expansion in eurozone GDP for Q2. This was double the 0.2% consensus forecast and was largely driven by strong government and AI-related spending. At the national level, Germany’s main index stood out thanks to a 2.1% gain (+4.7% YTD). France wasn’t too far behind after rising 1.6% (+7.1% YTD). Meanwhile, Italy closed up 0.7% (+19.6% YTD), while the Swiss main index could only manage a 0.1% rise (+11.3% YTD).

In fixed interest markets, 2.9% annual eurozone inflation for July served as a reminder that the European Central Bank could well be minded to raise rates at its September meeting. Perhaps that goes some way to explaining a modest four basis point uptick in the 10-year German bund yield to 3.21% (up 35 basis points YTD). Finally, like sterling, the euro strengthened against the dollar, ending the week at US$1.15 compared to US$1.14 previously.

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