July was a month of rotation rather than direction. The major U.S. indices closed virtually unchanged overall, but beneath that apparent calm, there was a profound shift in capital that moved away from the technology sector toward the energy and financial sectors, as well as value stocks. The renewed rally in oil prices, persistent producer inflation, and an upward shift in the long end of the yield curve set the tone for the month, against a backdrop of second-quarter corporate earnings that exceeded expectations.

The performance by index illustrates this dispersion. The S&P 500 closed virtually flat, down 0.13% for the month, maintaining a year-to-date gain of 9.41%, while the Dow Jones advanced 0.32% and is up 9.20% year-to-date; the Nasdaq was the hardest hit, falling 3.20%, which brings its year-to-date return down to 9.17%. The rotation toward value stocks was pronounced: large-cap value companies rose nearly 3.9% for the month, while growth stocks fell 4.7%. By sector, energy surged 12.1% and the financial sector rose 6.2%, in contrast to technology, which fell 8.0%. It is worth noting that the month’s biggest declines were concentrated in semiconductors and hardware—segments that still have very positive year-to-date returns—suggesting profit-taking following an extraordinary rally rather than a deterioration in fundamentals.

The source of this shift lies in the energy sector, where oil prices rebounded once again and continued their pattern of high volatility. Renewed tensions surrounding compliance with the ceasefire between the United States and Iran, coupled with warnings about critically low global inventory levels, led WTI to close July at $84.67 per barrel—a 21.83% increase for the month, bringing its year-to-date return to 47.46%. This trend is reigniting inflationary pressures just as the market had barely begun to price in June’s relief, and it largely explains the strength of the energy sector and the abrupt shift in interest rates.

That rate adjustment resulted in a negative month for fixed income across virtually all segments. The U.S. aggregate index fell 1.30% for the month, bringing its year-to-date loss to 0.69%; investment-grade credit declined 1.67%, while high-yield bonds showed greater resilience, falling by just 0.25%. The most significant movement occurred in 10- and 30-year Treasury bonds, which closed at 4.75% and 5.27%, representing increases of 31 and 36 basis points, respectively, for the month.

As for commodities, copper rose 4.41% for the month, bringing its year-to-date gain to 13.79%, supported by structural demand linked to electrification and artificial intelligence. Gold stabilized with a marginal increase of 0.26% following June’s sharp correction, although it still posts a year-to-date loss of 6.73%. Natural gas was the hardest-hit asset, falling 16.12% for the month. Bitcoin, meanwhile, recovered some of its lost ground with a 7.26% gain, though it still posts a year-to-date loss of 28.24%.

Against this backdrop of increased volatility in prices and interest rates, the main counterbalance came from second-quarter corporate earnings reports, which have been exceptional. With more than half of the S&P 500 companies having reported, 86% beat earnings estimates—a proportion well above the five-year average of 78%. Aggregate earnings growth is at levels not seen since 2021, although the total figure is skewed by non-operating extraordinary gains reported by Alphabet and Amazon, stemming from their investments in companies such as SpaceX and Anthropic. Excluding both companies, earnings growth stands at nearly 29% annually, marking the second consecutive quarter above 20% and the seventh consecutive quarter of double-digit growth. This operating performance has allowed the 12-month forward P/E ratio to decline to 19.6 times, a more reasonable level than that observed at the end of the second quarter.

Overall, July confirmed that the market is moving toward a cycle characterized by greater amplitude and dispersion. Exceptional corporate earnings are the most significant fundamental driver in the current environment, but the combination of volatile energy prices, persistent producer inflation, and rising long-term interest rates calls for a more selective approach. In this context, Grupo Inversión’s Investment Committee made adjustments to the portfolios during July, increasing exposure to U.S. equities—primarily in the technology sector—by offsetting the move with an exit from the German and European equity markets as a whole. This decision reflects expectations of stronger earnings growth for the assets added to the portfolio compared to those sold, as well as valuations in the European market which, following recent performance and structural challenges, offer more limited room for further expansion of multiples. Discipline in portfolio construction and an emphasis on the quality of fundamentals remain the most appropriate guiding principles moving forward.

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