Renewed hostilities between the United States and Iran pushed oil back to the center of global markets in July. WTI crude climbed more than 20% to finish the month at $84.67 a barrel. Fears that supply through the Strait of Hormuz would be disrupted again drove the move, and Energy was the best-performing sector in both North American markets, gaining 6.9% in Canada and 12.6% in the United States.
The bond market transmitted the shock. Higher crude fed into inflation expectations, lifting the U.S. 10-year Treasury yield 27 basis points to 4.73%, its highest level since January 2025. S&P 500 Info Tech fell 3.4%, and the S&P 500 closed July at -0.1%, its first July decline since 2014. The S&P/TSX returned 1.2%, outperforming for a second consecutive month on its far heavier Energy weighting.
Benchmark | Jun-2026 | Jul-2026 |
|---|---|---|
S&P 500 Total Return | -1.0% | -0.1% |
S&P/TSX Total Return | 0.5% | 1.2% |
Source: FactSet
Global Market Overview
United States
The Fed held the funds target range at 3.50% to 3.75% on July 29, but three regional presidents dissented in favor of a quarter-point increase, making it a 9-3 vote. The hold came despite a softer June CPI report on July 14 that showed headline inflation slowing to 3.5% from 4.2% and core easing to 2.6%. Despite softer inflation data, the 20% jump in crude kept inflation concerns elevated, and by month-end markets were pricing roughly a 60% probability of a September hike. Sector returns split sharply: Energy gained 12.6% and Financials 6.2%, while Information Technology fell 3.4% and Industrials 3.0%.
Europe
The European Central Bank held its deposit rate at 2.25% on July 23, pausing after June's first increase in nearly three years. Euro area inflation had eased to 2.8% in June from 3.2% in May, with core slowing to 2.4%, but energy inflation was still running at 8.5% year over year. The Governing Council said the full inflationary impact of the energy shock had yet to play out and that it was monitoring persistent inflation pressures, language that kept an autumn hike on the table. European equities slipped after the decision as investors read the pause as a matter of timing rather than the end of tightening.
Canadian Market Overview
The S&P/TSX returned 1.2% in July and is up 12.5% year to date, ahead of the S&P 500 at 10.1%. Energy did the heavy lifting, rising 6.9% and extending its year-to-date gain to 32.2%. Domestic data released during the month was constructive: the unemployment rate fell to 6.5% in June, a second consecutive monthly decline, and CPI slowed to 2.8% year over year from 3.2% in May as the spring gasoline spike began to fade.
The Bank of Canada held its overnight rate at 2.25% on July 15 and projected inflation would ease gradually before returning to the 2% target in early 2027. That outlook assumes oil declines toward roughly US$70 to US$75 a barrel. WTI finished July well above those levels, leaving the Bank's disinflation path under pressure heading into the September 2 decision. The Canadian dollar recovered 1.3% to US$0.713, recouping part of June's decline as stronger crude improved the terms of trade.
Canadian Sector Performance
Energy: +6.9%. Producers tracked crude higher as renewed Strait of Hormuz supply risk lifted WTI above $84, taking the sector to a 32.2% gain year to date;
Health Care: +2.4%. The index's smallest sector gained as investors added defensive exposure while long-duration growth names sold off;
Materials: -3.1%. A second straight decline after June's 12.1% drop, as rising real yields and continued outflows from precious-metals funds weighed on gold producers even though bullion itself ended July slightly higher near $4,050 an ounce;
Telecom: -3.3%. The most rate-sensitive group on the TSX fell as the 27 basis point rise in long yields raised the discount rate applied to high-payout dividend names.
Important Dates
August 12: U.S. CPI Inflation (July)
August 17: Canada CPI Inflation (July)
August 21: Canadian Retail Sales (June)
August 28: Canada GDP (June and second quarter)
September 2: Bank of Canada Interest Rate Decision
Final Thoughts
The key variable for markets is now whether Hormuz supply risk lasts long enough for higher energy costs to leak into core inflation. Core measures are still contained at 2.6% in the United States and near 2% in Canada, which helped both central banks hold in July, while policymakers continued to flag the risk of more persistent inflation pressures. The bond market has already shown how it will react if that happens. The opposite risk deserves equal weight: a ceasefire that pulls crude back toward US$70 would unwind July's leadership as abruptly as it arrived, much as it did in May.