Macro Update

• • Renewed US–Iran tensions pushed oil prices higher, reintroducing near-term inflation risk and raising pressure on the Fed to tighten policy.
  • The advance estimate of Q2 US GDP showed growth slowing to 1.5% from 2.1% in Q1. While the results were below expectations, key parts of the economy remain strong, with consumer spending and business investment both posting solid growth. Net trade was the largest detractor as AI hardware imports surged.
  • The Fed held rates steady at the target range of 3.50% - 3.75% in a 9-3 vote, with three officials dissenting in favor of a hike. Post-meeting comments from Chair Warsh offered limited forward guidance, and the market reacted negatively to the uncertainty with long Treasury rates rising.
  • The US economy added 57,000 jobs in June, while the unemployment rate ticked down to 4.2%. The gain fell below the average forecast, and the decline in unemployment was primarily attributed to a smaller labor force.
  • Consumer prices pulled back in June as CPI rose 3.5%, down from May’s 4.2%. The reversal was primarily due to falling energy prices, which had surged in recent months due to the US-Iran war. However, inflation risks reigniting in coming months amid renewed hostilities between the US and Iran.

Global Equity

• • Equities remained choppy in July with some rotation between crowded AI and mega-cap technology names. Non-US Developed equity and value saw improved momentum, while semiconductors and other AI-linked winners faced profit-taking amid questions about spending and valuation support.
  • 2nd quarter earnings season began on a strong note, helping offset elevated valuations. Technology stocks have contributed meaningfully, and unusually large company-specific surprises have made the headline growth rate look stronger than the underlying trend.
  • AI remains a central market theme, but investor scrutiny increased in July. The market began demanding clearer evidence that hyperscaler capital spending could translate into durable revenue growth, contributing to sharper swings in AI-linked stocks even as broader earnings momentum stayed constructive.

Global Fixed Income

• • Bond markets reacted negatively to the re-escalation of the US-Iran conflict and Chair Warsh’s post-meeting comments, leading long yields to move sharply higher in the month. The 10-year Treasury yield rose 27 bps, and 30-year Treasuries hit their highest level in nearly 20 years at 5.27%.
  • Several key global central banks met in July, with the Bank of England, European Central Bank, and Bank of Japan all holding rates steady but guiding for potential hikes later this year.
  • Credit spreads widened as Middle East tensions re-escalated but remain near historical tights, supported by strong corporate earnings. Cash yields look likely to continue near current levels, and absolute return strategies remain attractive as alternatives to duration-heavy portfolios.

Global Real Estate

• • Core real estate returns continued the recent trend of modest appreciation and a largely income-based return in the 2nd quarter. All sectors were positive in the quarter, with senior housing and retail leading while the office sector lagged.
  • The elimination of near-term rate cut expectations represents a headwind for the sector, as higher-for-longer financing costs weigh on valuations.