Arta Market Brief - July 2026: Markets Meet the New Fed

Written by Brandon Ho, CFA, Head of Investment Advisory SG

Commentary as of 8 July 2026

Kevin Warsh has said he wants to run the Fed the way Alan Greenspan did, though so far that comparison looks like it is about style rather than stance. His debut as Fed Chair sounded hawkish, not dovish, sending yields higher and knocking equities off their highs. Then a short lived reopening of the Strait of Hormuz, a sharp drop in oil prices and a soft June jobs report all eased the pressure on the Fed to hike, undoing much of that within weeks. Markets are still sizing up the new Fed chair, and if Greenspan really is the model, it may say more about how much he talks than about which way rates are headed.

1. Macro Backdrop

Kevin Warsh's first meeting as Fed Chair held the policy rate steady, a unanimous decision. The statement dropped the Fed's prior easing bias and flagged inflation as unlikely to return to target for a couple more years, even as growth was described as solid. The Fed's own projections showed a committee split roughly down the middle,¹ with the median implying at least one more hike this year, so the hawkish headline may not fully capture how divided policymakers actually are.

An interim ceasefire in mid June briefly reopened the Strait of Hormuz, though Iran declared it closed again within days, citing continued Israeli strikes in Lebanon as a breach of the arrangement. Shipping through the Strait has stayed well below pre conflict levels since, and a vessel near the Strait was attacked again in the first week of July.² Even so, the easing of the acute war premium has been enough to pull oil prices down from their April peak, with US crude trading near multi month lows.³ May's CPI reading marked a multi year high,⁴ driven almost entirely by gasoline prices, and June's figure, due mid July, should look more encouraging as pump prices have already eased. June's payroll report missed expectations by a wide margin, and the modest dip in the unemployment rate appears driven more by workers leaving the labour force than by new hiring. Wage growth stayed modest, still trailing inflation.⁵

2. Market Developments

US equities spent much of June reacting to headlines rather than digesting them. The hawkish Fed debut and a strong May jobs report pushed the S&P 500 off its record highs, before falling oil prices and easing geopolitical risk reversed much of that move two weeks later. By quarter end, the S&P 500 had still logged its strongest quarterly gain in six years. Leadership also rotated beneath the index level, as chip and memory stocks fell sharply on concerns about AI capital returns while more defensive sectors such as industrials, financials and healthcare outperformed for stretches, arguably a healthier pattern than a rally carried by only a handful of names.⁶

Treasury yields told the same story from the other direction. The 10 year yield climbed on the hawkish Fed debut and strong May payrolls data, then eased back as oil dropped and geopolitical risk faded. Much of the move sat at the short end, with the 10 year versus 2 year spread flattening as short term rate expectations moved more than longer term growth expectations.⁷ Credit markets stayed comparatively calm, with investment grade and high yield spreads little changed despite the swings in rates.⁸

Oil was the standout mover of the month, falling roughly a third from its April peak as the acute war premium eased following the mid June ceasefire, even though Iran's swift reclosure of the Strait of Hormuz days later meant physical shipping through it barely improved. That decline still did much of the market's inflation fighting for it, helping explain why bond yields eased even as the Fed's own language stayed hawkish.³ Gold traded in a choppier range, pressured mid month by higher real yields, then better supported as hawkish Fed expectations began to fade toward month end.⁹

3. Asset Class Perspectives

Equities

Within US large caps, the more constructive setup continues to sit with the parts of the market tied to the physical build out of AI, power, chips, memory and data centre capacity. Second quarter S&P 500 earnings are expected, according to consensus analyst estimates, to post another quarter of strong double digit growth, extending a run that has continued for well over a year, and demand for that physical infrastructure looks more a function of committed capital spending than of sentiment, which makes it a relatively steadier expression of the AI theme.

That is not a case for concentrating in one trade, though. The debate over AI valuations has intensified for good reason. The Shiller price to earnings ratio has climbed to levels last seen in the dot com era, and while more forward looking valuation measures look considerably less stretched once elevated earnings expectations are factored in,¹⁰ those expectations still need to be met. Pockets of the market pricing in close to flawless execution, certain software and platform names in particular, look more exposed to disappointment than the broader index suggests. We would treat these as areas calling for more selectivity, rather than areas to avoid altogether.

Fixed Income

The more constructive area within fixed income continues to sit with shorter and medium dated bonds, which capture a reasonable level of income without taking on as much interest rate risk. The shape of the yield curve this year suggests markets believe higher short term rates are starting to weigh on longer term growth expectations. Longer dated bonds look like the area to be more cautious on for now, given how sensitive they have been this year to shifts in the inflation outlook and potential Fed rate hikes. Investment grade credit continues to look like a reasonably steady core holding, though reaching further down the credit quality spectrum for yield is where we would be more careful, since spreads leave relatively little room for error if growth disappoints.

Commodities and Real Assets

Gold remains one of the more attractive diversifiers in the current environment, precisely because so much still depends on an unresolved situation: a Fed still finding its footing, and a Middle East truce that fell apart within days of being announced. Oil looks more like an area to be cautious on. It is holding near multi month lows even though the Strait of Hormuz has closed again after only a brief reopening, with a vessel nearby attacked once more in early July. We would be wary of assuming oil stays this cheap if a fresh reopening cannot be negotiated.

4. A Few Things To Watch

1. Whether June's hawkish tone was posturing rather than a genuine shift. A majority of actual voting members favoured holding steady or cutting, not hiking, which suggests the tough language may have been aimed at managing expectations. The mid July CPI report should help clarify which reading is closer to the truth.

2. Whether AI related earnings keep clearing an increasingly high bar. A high bar for growth this quarter leaves little room for disappointment, and any stumble in margins or guidance could close the gap between rich trailing valuations and more reasonable forward multiples quite quickly.

3. Whether the Strait of Hormuz reopens again. The Strait briefly reopened under a ceasefire in mid June, but Iran closed it again within days, and a vessel nearby was attacked once more in early July. It is effectively closed again by most measures, with major carriers still routing around it entirely, so the question now is less about a fragile truce and more about whether a fresh reopening can be negotiated at all, particularly with US mid term elections approaching in November.

5. Behavioural Perspective: Recency Bias

June is also a useful reminder of how recency bias can work against investors. Those who de-risked after Warsh's hawkish debut, treating it as the new normal, may have missed the rebound that followed just weeks later. The instinct to treat the most recent data point, or the most recent Fed comment, as the new permanent state of the world is a natural one, but it is also one of the more reliable ways to buy high and sell low. A strategic allocation, revisited periodically rather than after every headline, tends to serve investors better than reacting to the loudest news of the week.

Furthermore, this may become more relevant if Warsh continues to model his communication style on Alan Greenspan, who was famously difficult to parse and preferred to keep his options open rather than commit to a clear path. It is worth being precise about what the comparison is and is not. Greenspan's broader legacy skews accommodative, while Warsh's debut has leaned hawkish, so the parallel says more about how much the Fed discloses than about which way rates are headed. A Fed that says less and holds fewer press conferences gives investors fewer explicit signals to react to, which makes the temptation to overweight any single comment even harder to resist.

6. Looking Ahead

The outlook into the second half of 2026 looks constructive, though the margin for error has narrowed. Falling oil, a Fed that may talk tougher than it acts, and a resilient earnings backdrop could keep supporting risk assets, even as an AI trade that depends on earnings delivering as promised argues against complacency.

Looking further out, consensus estimates call for continued strong double digit earnings growth through the rest of the year, extending a run that has already gone on longer than expected at the start of the year. History also offers a mildly encouraging data point: strong first half gains have more often than not been followed by a positive second half,⁶ though this is a pattern rather than a rule, especially evident in a year that has already shown how quickly a calm setup can turn volatile. The next scheduled FOMC meeting, at the end of July, will be an early test of whether Warsh's Fed continues to hold steady or leans into the slight hawkish tilt suggested by its own projections.

¹ Federal Reserve; Summary of Economic Projections, June 17, 2026.

² Reuters; wire service reporting on Strait of Hormuz shipping incidents, June to July 2026.

³ Bloomberg commodity data; ICE Brent futures; US Energy Information Administration.

⁴ US Bureau of Labor Statistics, Consumer Price Index Summary.

⁵ US Bureau of Labor Statistics, Employment Situation report.

⁶ Bloomberg; S&P Dow Jones Indices.

⁷ US Treasury; Federal Reserve Bank of St. Louis (FRED); Bloomberg.

⁸ Bloomberg; ICE BofA credit indices.

⁹ World Gold Council.

¹⁰ FactSet; Bloomberg Intelligence, consensus earnings estimates.