Global equity markets, as measured by the MSCI ACWI, moved broadly sideways through June and July, before reaching new all-time highs in early August.
Essentially, markets appear to have concluded that:
- Uncertainty surrounding the Middle East has eased in recent days.
- Inflationary pressures will ultimately moderate.
- Strong corporate earnings continue to underpin equity valuations.
S&P 500 earnings for Q2 are on track to be nearly 50% higher than a year ago, while earnings forecasts for 2027 are also being revised upwards.
Sources: MSCI ACWI, Rebased to 100 as at 31.12.25. Period shown is Year to 5.8.26
July is a reminder to investors how quickly sentiment can change. The resumption of fighting between the US and Iran pushed up oil and natural gas prices, as can be seen in our Iran/Middle East Conflict dashboard below.
Sources: ECB, MSCI ACWI, Rebased to 100 as at 31.12.25, investing.com, FT and Acuvest.
The other noticeable feature of the returns table below is that July was a negative month for bond investors, as yields moved higher amid concerns about an oil driven inflation shock, the prospect of policy interest rates remaining higher for longer, and renewed focus on the high levels of government debt in several major economies.
July and YTD Numbers
Inflation Remains above Target
As the graph below shows, inflation remains stubbornly above central bank targets. While some of the recent pressure has eased, the outlook remains uncertain, particularly given the potential for renewed volatility in energy prices. This leaves central banks facing an uncomfortable balancing act between supporting economic growth and ensuring inflation does not become entrenched.
Will Companies Diversify their Spending on AI?
The AI story continues to evolve. An article in the FT by Jamie John and George Hammond, published on July 13th, caught my eye. It highlighted a significant shift in the AI landscape: companies are increasingly using Chinese AI models alongside, or instead of, leading US models.
The main attraction is cost. Models from Chinese groups such as DeepSeek, Alibaba, Moonshot AI and Z.ai have become increasingly capable, while often costing substantially less. Companies are therefore adopting a “multi-model” approach, i.e. using cheaper models for everyday tasks while reserving the most expensive US frontier models for the hardest problems.
There is also a strategic dimension. Many Chinese models are open-weight, allowing companies to host them themselves and giving them greater control over their data and technology infrastructure. This is particularly relevant for companies that do not want to become overly reliant on US providers, especially where future government restrictions could potentially limit access to certain technologies.
As AI becomes cheaper, its use is likely to increase significantly, driving even greater demand for computing power. This raises an interesting question for investors. The so-called hyperscalers are spending enormous sums building the data centres and computing infrastructure required to meet that demand. But will they all earn an attractive return on that investment if increased competition and rapidly improving technology continue to drive down the price companies are willing to pay for AI? Just another aspect of AI the market is pondering.
As with most technological revolutions, the most likely outcome is that there will be both big winners and big losers.
How to Invest When the Potential Gains and Losses are Big
We work with clients to build a framework designed to protect and grow their wealth. A key part of that is establishing a Resilient Fund. This is the part of their savings where clients simply choose not to take investment risk. This provides the “sleep at night” factor we all need, but, just as importantly, it gives clients the confidence and financial capacity to stay committed to a long-term investment plan.
That long-term plan is designed to give clients exposure to the asset classes with the highest expected returns over the long-term, including equities. At the foundation of the equity allocation, we advocate indexing to provide broad diversification and, importantly, confidence that a meaningful part of the portfolio will capture the return of the equity market itself. This means investors do not have to continually identify the individual companies that will ultimately be the winners and losers. Instead, the key question is a much simpler one: do we believe the collective earnings of global companies will be higher in 10 or 20 years’ time?
So – What Should Investors Do?
Staying the Course in an Uncertain World
With continued uncertainty around Iran and the broader Middle East, it is natural for investors to feel uneasy. But for long-term investors, the playbook remains familiar: stay patient, stay diversified, and stay focused on the bigger picture.
Our key messages remain:
1. Stay Invested: Markets move quickly, and missing even a handful of strong recovery days can have a meaningful impact on long-term returns.
2. Trust Your Plan: A well-diversified portfolio is built to withstand periods of uncertainty like this. If your goals have not changed, your investment strategy should not either.
3. Look for Opportunity: Volatility can be uncomfortable, but it can also create opportunity. For disciplined investors, periods of uncertainty can provide attractive entry points over time.
The Bottom Line:
Markets are balancing energy risk, inflation uncertainty and rapid technological change. The Middle East conflict may drive short-term volatility, but AI, productivity and long-term growth drivers remain important counterweights. Staying the course with a robust plan — and good advice — remains the most effective response.
John Tuohy is Chief Executive of Acuvest, an Irish-owned, independent advisory firm specialising in wealth management, pensions, and investment advisory services for individuals, companies, pension schemes, charities, and institutions. John is a Chartered Financial Analyst (CFA) and a Fellow of the Chartered Association of Certified Accountants.
