July 2026 Review & Commentary: Is July the Best Month of the Year?
Peter W. Tuz, CFA, CFP®, President & Portfolio Manager
Although the first few days of this month have been rough, historically July is in one way the best month of the year. There has not been a down S&P 500 Index (“S&P 500”) in July for 10 years. Gains in the S&P 500 for the month ranged from a low of 1.2% (2024) to a high of 9.2% (2022) and averaged 3.5%. This makes it the second-best month in performance compared to November’s, which has a 10-year average gain of 4.3%.
After the gains in Q2, we should all be happy if we come close to the 3.5% average July gain this year! The table below shows S&P 500 returns by month since 2016.
What is both most surprising and perhaps most frightening is how concentrated returns have been year-to-date. According to MarketWatch, 10 stocks accounted for 78% of the S&P 500’s year-to-date return of 10.21%. They include:
| Company | % of S&P 500 gain |
|---|---|
| Micron | 17% |
| Advanced Micro Devices | 11% |
| Intel | 9% |
| Alphabet (GOOGL) | 8% |
| Applied Materials | 7% |
| Nvidia | 6% |
| Lam Research | 6% |
| Sandisk | 5% |
| Apple | 5% |
| KLA Corp. | 4% |
Not surprising all the companies listed above are technology companies with their fortunes tied in one way or another to artificial intelligence (“A.I.”) and the multitude of services and products necessary to build and maintain the real estate and equipment they need. Capital spending by the biggest players in the A.I. world is expected to be some $750 billion this year and not slack off for several years.
Although it is virtually impossible to accurately predict what the current quarter will bring, there are many reasons to be optimistic about the next few months. Of course, there are many reasons to be pessimistic as well. Here is a short list of both.
Positive factors:
Earnings are expected to be very strong both in Q2 26 and the full year. FactSet estimates Q2 26 S&P 500 earnings will grow at 22% on revenue growth of 12%. At the beginning of the year, analysts expected the S&P 500 to post aggregate earnings of $297.51 for the full year. The most recent estimate is now $338.58 – a 13.8% jump since January 1. Perhaps more importantly, preliminary estimates for 2027 S&P 500 earnings are $399.61. This puts the S&P 500 valuation at 18.7x 2027 earnings. It is not unreasonable to think the market could put a 20x price/earnings (“p/e”) ratio on those earnings and see the S&P 500 reach 8,000, a target now held by several major brokerage firms.
Inflation could come down quickly from May 2026 levels of 4.2% for the CPI, especially if oil prices fall after ending the war with Iran. Falling inflation would reduce the likelihood that Federal Reserve bankers will raise interest rates.
Likely due to higher prices, consumer spending has started to slow and is running at an annual rate of 1.4% to 1.7% according to the federal Bureau of Economic Analysis. At the same time, the personal savings rate has dropped below 3.0%. It was 5.2% one year ago. This also suggests that despite higher inflation, interest rates may fall going forward.
Negative factors:
Markets are not inexpensive with the S&P 500 at 22.1x estimated 2026 earnings per share. This is well above both the five-year average p/e of 19.9x and the 10-year average of 19.0x. It is too early to have confidence that S&P 500 earnings will jump the necessary 18.0% to reach next year’s $399.61 consensus earnings estimate.
The narrowness of markets may be a cause for concern. As noted above, 10 stocks have accounted for 78% of the S&P 500’s year-to-date returns. They are virtually all A.I. related. A slowdown in the growth rate of A.I. adoption for any reason could be painful for overall markets.
Due to higher-than-expected inflation, many market watchers expect at least one interest rate hike in 2026. Furthermore, debt levels in the United States are at record high levels by many metrics. Fear of some sort of mishap affecting fixed income markets may cause interest rates to remain higher than they otherwise would be as well as present a risk to equity markets.
According to Stock Trader’s Almanac, second and third quarters in mid-term election years are weak. Since 1949, the S&P 500 on average has fallen 2.5% in the second and third quarters of mid-term years. Second quarter 2026 strength may be the anomaly.
With the war with Iran resuming July 8, we should not forget global turmoil still exists and could flair up in several areas anytime, possibly causing market disruption.
Given all this, we think it is especially important for investors to look at their asset allocation and think about whether it needs to be rebalanced some. The strong markets have caused some to now have an equity percentage somewhat higher than their plans.
As always, we are here to answer any questions you might have both about your investments and about markets in general.