In This Update: Investment Spotlight | Stock Market Review | Economic Review & Outlook
Chart of the Month | Closing Statements
INVESTMENT SPOTLIGHT
The AI Trade Faces Its First Real Test
For much of the last several years, artificial intelligence has been the defining investment theme. This month, however, investors began to question whether the spending required to win the AI race is becoming excessive. For example, shares of Tesla and Alphabet reacted negatively after increasing their capital expenditure forecasts while reporting weaker free cash flow, raising concerns about if and when these massive investments will generate incremental revenue.
Additional uncertainty emerged as China’s Moonshot Kimi K3 model claimed performance comparable to leading U.S. AI systems, fueling concerns that competitive advantages may be narrowing even as spending accelerates. Meanwhile, OpenAI faced scrutiny after reports that one of its models breached a testing environment and exploited a vulnerability without direct human intervention. While the long-term potential of artificial intelligence remains significant, July served as an important reminder that transformative technologies can create both opportunities and risks. Perhaps most notably, the collapse of hedge fund Situational Awareness following the month’s AI-driven selloff highlighted the dangers of excessive leverage and overconfidence during periods of intense market enthusiasm.
MARKET INDEX RETURNS | July 2026 | YTD 2026 |
S&P 500 Index | -1.0% | 10.1% |
Russell 2000 Index | -3.0% | 19.0% |
MSCI EAFE Index | 2.0% | 11.6% |
Bloomberg US Agg. Bond Index | -1.3% | -0.7% |
FTSE 3 Mo. T-Bill Index | 0.3% | 2.2% |
Hedge fund Situational Awareness used as much as 400% leverage on its AI bets.
STOCK MARKET REVIEW & OUTLOOK
Market Leadership Broadens Beyond Big Tech
Markets produced a mixed but ultimately constructive month. One of the most notable developments was the broadening of market leadership. While the dominant technology stocks suffered throughout July, most other sectors performed well. This shift suggests investors are increasingly finding opportunities beyond a small group of industries, creating a healthier foundation for the broader market.
Corporate earnings reports generally reinforced confidence in the underlying economy. The earnings growth rate for companies who have reported second quarter results thus far stands at a staggering 47%, the highest rate since the post-covid bounce back in 2021. At the same time, some of the market’s largest technology companies faced increased scrutiny. Apple, fresh off surpassing a $5 trillion valuation and briefly overtaking Nvidia as the world’s most valuable company, suffered its second worst weekly decline of the year after issuing a weaker-than-expected outlook tied to supply-related price pressures.
Looking forward, investors will likely remain focused on earnings durability, equity valuations, and how higher interest rates affect corporate profitability. While broadening participation is a positive sign for market health, leadership may continue rotating as investors reassess growth expectations and the sustainability of AI-related spending.
S&P 500 SECTOR RETURNS | July 2026 | YTD 2026 |
Communication Services | 0.6% | 1.4% |
Consumer Discretionary | 0.8% | 0.0% |
Consumer Staples | 2.1% | 10.3% |
Energy | 12.6% | 34.7% |
Financials | 6.2% | 4.8% |
Healthcare | 2.4% | 6.0% |
Industrials | -3.0% | 16.5% |
Information Technology | -3.4% | 15.7% |
Materials | -1.7% | 10.1% |
Utilities | -2.2% | 5.3% |
Real Estate | 2.5% | 14.3% |
ECONOMIC REVIEW & OUTLOOK
Economic Resilience Meets Inflation Headwinds
The U.S. economy continued to exhibit resilience despite growing signs of moderation. Consumer spending increased 0.2% in June, supported by strong tourism activity, increased spending at hotels and restaurants, and robust retail activity surrounding Amazon’s Prime Day promotions. At the same time, inventory reductions and lower government spending contributed to a slower-than-expected second-quarter GDP growth rate of 1.5%. Encouragingly, consumer spending and business investment remained healthy, underscoring the economy’s underlying strength.
The inflation picture, however, remains challenging. The latest Personal Consumption Expenditures (PCE) report showed inflation holding at 3.3%, well above the Federal Reserve’s 2% target. Rising oil prices, which climbed approximately 24% during July amid renewed geopolitical tensions in the Middle East, threaten to add further upward pressure to inflation in the months ahead. Reflecting these concerns, the Federal Reserve left interest rates unchanged but revealed growing disagreement among policymakers, with three members favoring an immediate rate increase. Markets are now assigning a meaningful probability to rate hike at the September meeting.
CHART OF THE MONTH
Year-to-Date Performance Driven by More than Big Tech
Source: Bloomberg Charts
CLOSING STATEMENT
Looking Ahead
The defining lesson from July was that markets are evolving beyond a single narrative. Artificial intelligence remains a powerful long-term growth story, but investors are increasingly demanding evidence that extraordinary spending will translate into sustainable profits. Likewise, economic growth remains positive, but stubborn inflation, higher energy prices, and elevated interest rates continue to create headwinds.
As we move into August, investors will closely monitor inflation data, Federal Reserve communications, labor market conditions, and developments surrounding the U.S.-Iran conflict. The combination of heightened geopolitical tensions in the Middle East, higher Treasury yields, and the potential for further rate hikes suggests volatility could remain elevated. However, strong corporate earnings, resilient consumer spending, and broadening market participation continue to provide support for financial markets. While the environment may require greater selectivity and discipline than investors have needed in recent years, the market’s expanding leadership base and continued economic growth suggest opportunities remain available for those who maintain diversification, stay focused on fundamentals, and avoid becoming overly dependent on any single investment theme.
August is also recognized as National Make-A-Will Month, serving as a timely reminder that successful financial planning extends beyond investment performance. While market conditions and economic developments often command investors’ attention, ensuring that estate planning documents are current and aligned with one’s wishes remains an equally important component of long-term financial security. Periodically reviewing wills, trusts, beneficiary designations, and powers of attorney can help ensure that wealth is transferred efficiently and according to plan.
Please reach out to one of your Account Officers or any member of our Executive Leadership Team to discuss topics raised in this letter or if we can assist you in any other way.
Meet The Plimoth Investment Advisors Executive Leadership Team
Steven A. Russo, CFA
Chairman of the Board
508‑591‑6202
srusso@pliadv.com
Mark J. Gendreau, CFP ®
President & CEO
508-591-6211
mgendreau@pliadv.com
Edward J. Misiolek
Senior Vice President & Operations Officer
508‑675‑4316
emisiolek@pliadv.com
Teresa A. Prue, CFP®
Senior Vice President &
Head of Fiduciary Services and Administration
508‑591‑6221
tprue@pliadv.com
