Profits Hold, but July's Equity Leadership Rotated Away from Expensive Growth
Global Markets · Global Equities & Styles — Weekly Report · Publication 7 August 2026 · Review 1 July–6 August 2026
Company profits still support the market, but July's gains came from a rotation toward value, energy and financials; concentration in a few expensive U.S. companies remains the main structural risk.
Executive summary
Global shares were broadly flat in July, but the calm headline hid a large change in leadership. The MSCI All Country World Index returned 0.1% in U.S. dollars. Europe gained 1.6%, Japan rose 1.0%, and emerging markets fell 3.0% after a strong first half.
Inside the United States, the equally weighted version of the S&P 500 beat the standard index for a second month. That means more large companies participated. Yet small companies still fell, so this was not a full-market advance. Value shares, energy and financial companies led. Expensive growth, technology and momentum shares lagged.
Company profits provide real support. Second-quarter U.S. earnings were above expectations, and analysts raised third-quarter and full-year profit forecasts during July. However, a few unusually large companies made a major contribution. That leaves the market dependent on exceptional results from its biggest members.
The picture is therefore mixed-positive. Profit growth is strong and participation has improved within large companies. But valuation and concentration risks remain high: the ten largest S&P 500 companies represented 37.6% of the index. The main test is whether profit upgrades spread beyond the current leaders while inflation, oil prices and interest rates remain contained.
What this means to investors
The market is less fragile than a headline dominated only by a few technology companies would suggest, but it is not yet broadly healthy. More U.S. large companies participated in July, while smaller companies did not. A durable broadening would require mid-sized and small firms to join without earnings forecasts weakening.
Earnings support is genuine, especially in the United States. This reduces the risk that share prices are rising only because investors are willing to pay more for the same profits. Still, the largest companies carry unusual weight. A disappointment from one or two mega-cap firms can move the whole index even when most shares are stable.
Value shares led growth shares in July. Energy and financial companies benefited, while technology and momentum strategies faced pressure. Defensive sectors did not move together: health care and consumer staples rose, but utilities fell. The market was rotating, not simply becoming cautious or aggressive.
For Kenyan investors with offshore exposure, currency matters alongside the foreign share price. If a U.S.-dollar investment rises 1% while the shilling weakens 2% against the dollar, the approximate shilling return is about 3% before fees and taxes. The shilling was broadly stable around KSh129.4 per dollar at the end of July and on 6 August, so recent offshore results were driven mainly by the assets themselves.
For African markets, value and financial-sector leadership can be supportive because many local indices hold more banks, telecoms, materials and energy companies than global technology benchmarks. That is an interpretation, not confirmed capital movement. Higher oil prices help exporters but can raise import costs and inflation pressure in Kenya and other oil-importing economies.
Market at a glance
Latest comparable public data available at the report cut-off; returns are in U.S. dollars unless stated otherwise.
| Indicator | Latest position | Previous / comparator | Direction | What it means | Data date |
|---|---|---|---|---|---|
| Global equities | +0.10% | June: -0.77% | Improved | Flat headline; large internal rotation | 31 Jul |
| United States | -0.06% | YTD: +10.14% | Flat | Strong year, weak July | 31 Jul |
| Europe | +1.61% | Global: +0.10% | Ahead | Regional leader among major markets | 31 Jul |
| Emerging markets | -3.03% | YTD: +20.27% | Down | July setback after strong gains | 31 Jul |
| Earnings revisions | Q3 EPS +0.3% | Typical first month: -1.0% | Up | Profit expectations improved | 30 Jul |
| Market breadth | Equal weight +1.01% | S&P 500 -0.06% | Broader | More large shares participated | 31 Jul |
| Equity-fund flow | +$17.20bn | Prior week: -$15.74bn | Inflow | Confirmed weekly reversal | 29 Jul |
Sources: MSCI month-end factsheets; S&P U.S. dashboard; FactSet revisions; ICI weekly flows.
WHAT THIS TELLS US The headline market was flat, but leadership improved inside U.S. large caps and shifted toward Europe, value and cyclical sectors. Emerging markets remained strong for the year despite a difficult July.
Europe and Japan led while emerging markets paused
Europe gained 1.61% in July and Japan rose 1.03%. The United States was flat, while emerging markets fell 3.03%. The emerging-market decline followed a strong year-to-date advance, so it looks more like a setback than a confirmed change in the longer trend.
Regional leadership mattered because it reduced the market's dependence on U.S. mega-cap technology for one month. European financials and value shares were important contributors. Investors with unhedged foreign holdings also experienced currency effects, which can either add to or subtract from the index move.
Figure 1. Major-region total returns, July 2026.
WHAT THIS TELLS US July was not a global surge. Leadership shifted toward developed markets outside the United States, while emerging markets gave back part of their earlier gains.
Sources: MSCI World and regional factsheets; S&P U.S. dashboard.
Value and cyclical sectors replaced growth as leaders
In the United States, energy returned 12.60% and financials 6.16%. Value shares gained 2.01%, while growth shares fell 1.75% and information technology declined 3.43%. Rising oil prices helped energy. Bank shares benefited from a higher-rate environment and firmer profit expectations.
This was a rotation rather than a broad flight from risk. Health care and consumer staples rose, but utilities fell. The market preferred cheaper companies and sectors linked to economic activity, while reducing exposure to expensive previous winners.
Figure 2. Selected U.S. sectors and styles, July 2026.
WHAT THIS TELLS US Value clearly led growth, and cyclical sectors led the index. However, the fall in small companies shows that the rotation did not yet reach the whole economy-facing market.
Sources: S&P U.S. Index Dashboard; S&P 500 Factor Dashboard.
Earnings improved, but the strongest figures were concentrated
By 31 July, 61% of S&P 500 companies had reported second-quarter results. Of those, 86% beat earnings expectations. The combined surprise was 31.4%, far above normal. Analysts also raised third-quarter earnings per share by 0.3% during July, rather than cutting estimates as they usually do early in a quarter. Full-year 2026 estimates rose 3.2%.
These results support the market, but they need careful reading. Alphabet, Amazon, Exxon Mobil and Chevron made unusually large contributions to aggregate growth. Excluding three major contributors, the reported advantage of internationally exposed U.S. companies fell sharply. Profits are strong; the strength is not evenly distributed.
Sources: FactSet Q2 update; FactSet estimate revisions; FactSet global-sales analysis.
Valuations still demand strong profit delivery
A forward price-to-earnings ratio compares today's share price with expected profits over the next year. U.S. shares traded at 20.37 times expected earnings, compared with 14.99 for Europe and 10.35 for emerging markets. World growth shares stood at 24.68, versus 15.20 for world value.
Lower ratios do not automatically mean a market is cheap. Profit quality, interest rates, sector mix, political risk and currency risk differ. The gap does show that growth shares have less room for disappointment than value shares if expected profits weaken.
Figure 3. Forward price-to-earnings ratios, 31 July 2026.
WHAT THIS TELLS US Earnings growth supports the market, but the price paid for those earnings varies widely. Expensive growth companies remain most exposed if forecasts are revised down or long-term interest rates rise.
Sources: MSCI USA factsheet; MSCI Europe index profile; MSCI emerging-markets profile; MSCI World Value factsheet.
Why did it happen?
First, profit reports were stronger than expected. Large U.S. companies produced unusually large earnings surprises. This limited the damage from concerns about valuations and artificial-intelligence spending.
Second, oil prices rose sharply. Middle East tensions lifted energy prices. Energy producers benefited, while transport, manufacturing and oil-importing economies faced higher cost risk.
Third, interest-rate expectations stayed restrictive. The U.S. Federal Reserve kept rates steady. Higher bond yields made distant future profits less valuable today, which pressured expensive growth shares and helped some financial companies.
Fourth, investors rotated away from crowded winners. Technology, momentum and high-beta shares had risen strongly before July. Their reversal was consistent with profit-taking and risk reduction. Public data cannot confirm how much of the move was short-term repositioning rather than a lasting change.
Who benefits and who faces pressure?
Likely effects if July's rotation continues; these are market implications, not recommendations.
| Group, asset or sector | Likely effect | Reason | Main risk |
|---|---|---|---|
| Energy producers | Benefit | Higher oil prices lift revenue | Price reversal or policy intervention |
| Banks and insurers | Benefit | Value leadership and firm rates | Credit losses or sharp rate cuts |
| Profitable value companies | Benefit | Lower starting valuations | Weak earnings quality |
| Mega-cap growth | Mixed pressure | Strong profits, expensive prices | Any forecast disappointment |
| Small companies | Pressure | July participation remained weak | High borrowing costs |
| Oil-importing African economies | Pressure | Higher fuel and import bills | Currency and inflation shock |
| Passive index investors | Mixed | Broad exposure captures gains | High weight in a few firms |
WHAT THIS TELLS US The rotation favours cash-generative sectors and cheaper shares, but the market still relies on mega-cap profits. African oil exporters and importers face opposite effects, so a single regional conclusion would be misleading.
Where is money moving?
Confirmed U.S. fund data show a sharp preference for index products. In June, active equity funds had net outflows of $36.49 billion, while index equity funds received $79.71 billion. This is new cash flow, not an estimate based on rising asset values.
The latest weekly data also improved. Combined mutual funds and exchange-traded funds received $17.20 billion in equity money in the week ended 29 July, after a $15.74 billion outflow the prior week. Domestic U.S. equity funds received $18.30 billion, while world equity funds had a $1.10 billion outflow.
Exchange-traded funds had $39.91 billion of equity net issuance in that week. That does not prove all the money was passive because some exchange-traded funds are actively managed. The monthly active-versus-index survey gives the clearer confirmation: index strategies received money while active equity funds lost money.
Figure 4. Confirmed U.S.-registered equity-fund net flows, June 2026.
WHAT THIS TELLS US Investors are still adding most decisively through index products. Active managers may find more opportunities when leadership rotates, but the flow evidence does not yet show clients rewarding them with new money.
Sources: ICI active and index data; ICI weekly combined flows.
What the global environment means for Africa and Kenya
The global shift toward value and financial companies is potentially supportive for African exchanges because banks, telecoms, energy and materials often carry more weight than technology. However, the available flow data do not confirm a broad move into African equity funds. Price strength alone should not be called foreign capital inflow.
Kenya's local market had its own positive July. The NSE All Share Index rose from 224.70 on 1 July to 237.86 on 31 July, a gain of about 5.9% in shillings. It then eased to 234.63 by 6 August. This local move was stronger than the flat global headline, but it cannot be attributed to global flows without transaction-level evidence.
The shilling remained near KSh129.4 per U.S. dollar at month-end and on 6 August. That stability limits recent currency translation effects for Kenyan holders of dollar assets. The bigger cross-border risks are now oil-driven inflation, U.S. bond yields and whether global investors keep favouring liquid index products over smaller frontier markets.
Sources: NSE 1 July price list; NSE 31 July price list; NSE 6 August price list; CBK exchange rates.
What could change this view?
Base case. Global equities remain supported by profit growth, but returns become less concentrated and more volatile. Value and selected cyclical sectors retain part of July's advantage, while expensive growth companies need strong earnings delivery.
Positive possibility. Profit upgrades spread to Europe, Japan, emerging markets and smaller U.S. companies. Inflation cools without a major growth slowdown, bond yields stabilise, and broader market participation becomes sustained.
Negative possibility. Oil and inflation remain high, long-term interest rates rise, or mega-cap earnings disappoint. Because the largest companies dominate the U.S. index, a small number of negative surprises could pull down global benchmarks.
Earnings revisions. The view would strengthen if expected profits keep rising across more sectors. Two consecutive months of broad cuts would weaken it.
Market participation. The view would improve if equal-weighted, mid-cap and small-cap shares rise together. Continued small-cap weakness would show that broadening remains incomplete.
Concentration. A falling top-ten index weight without falling profits would reduce structural risk. A further rise above the current 37.6% would increase dependence on a few firms.
Fund flows and currency. Sustained world-equity inflows and stable exchange rates would support cross-border participation. Repeated outflows, a stronger dollar or weaker African currencies would raise pressure.
What to watch next
Scheduled releases known at the data cut-off; times and dates can change.
| Date | Event | Why it matters | Market or sector affected |
|---|---|---|---|
| 7 Aug | U.S. July employment report | Changes rate and profit expectations | Global equities; small caps |
| 12 Aug | U.S. July consumer inflation | Tests the case for lower rates | Growth, banks, currencies |
| 12 Aug | MSCI August Index Review | Additions and deletions can trigger index trading | Developed and emerging markets |
| 19 Aug | Federal Reserve July minutes | Shows how officials view inflation and rates | U.S. growth; dollar |
| 26 Aug | U.S. GDP, profits and July spending | Updates growth, margins and inflation | Cyclicals; consumer sectors |
| 15-16 Sep | Federal Reserve meeting | Sets the next major rate signal | Global shares and FX |
Sources: BLS employment schedule; BLS inflation schedule; MSCI review dates; Federal Reserve calendar; BEA release schedule.
WHAT THIS TELLS US The next test is whether economic data allow profits to stay strong without forcing interest rates higher. The MSCI review also matters for countries and companies whose index weights change, but any associated trading should be separated from long-term investment conviction.
Final Desk takeaway
Global equities are no longer moving as one simple technology-led trade. July showed better participation among U.S. large companies and clear leadership from value, energy and financials. Strong profit results and rising forecasts give the market a firmer foundation than price momentum alone. Yet the evidence is not fully broad: small companies lagged, emerging markets fell for the month, and the largest U.S. firms still dominate index returns.
For Africa and Kenya, the rotation is potentially helpful because local markets contain more banks, telecoms, energy and materials. That support is not the same as confirmed foreign inflow. The most important signals now are the spread of earnings upgrades, the path of oil and interest rates, sustained participation by smaller companies, and verified fund flows into world and frontier markets.
Data notes
Returns are total or gross index returns in U.S. dollars unless stated otherwise. Kenya's NSE All Share Index is shown in local currency. Valuation is not assessed from one ratio alone. Fund-flow statements use Investment Company Institute transaction estimates or survey data; rising fund assets are not treated as inflows. This report is educational and does not provide personalised buy, sell or portfolio-allocation advice.
Sources
MSCI month-end factsheets (MSCI World)
Public investment research. Educational use only; not personalised investment advice.