The first month of the year was characterised by strong gains for equity markets, the exception being the NZX 50 which continued its dire performance over recent years (-0.9%).
The Magnificent 7 (+0.6%), which have been the focus of gains over recent years, have taken a back seat as the bull market has broadened into previously overlooked sectors, such as materials and industrials. Global equites rose 3.0% with emerging markets (+8.9%) and small caps (+5.9%) outperforming developed markets (+2.3%), while value (+4.7%) outperformed growth (-0.3%).
AI sparks “SaaSpocalypse”
Away from the broad equity indices, the AI narrative shows no sign of slowing down. Anthropic’s launch of Claude Code and productivity plugins via Claude Cowork, letting AI handle legal, sales, marketing, and data tasks, sparked a “SaaSpocalypse,” wiping out hundreds of billions in software stock value. The viral open-source agent Clawbot (now OpenClaw), often called “Claude with hands” for its autonomous powers, has amplified fears by making powerful, easy-to-run AI agents accessible to anyone.
As the following chart shows, since “Liberation Day” there has been a rapid divergence between technology stocks that provide the picks and shovels to the AI arms race vs those that currently provide software services.
SaaS companies have borne the brunt of the selloff, as their subscription model appears ripe for disruption from AI-enabled competitors or tools created by end users. Even the likes of Xero, once thought difficult to replicate with an extremely strong moat, has seen its stock price fall almost 60% in the last 6 months.
Commodities extend their rally
Commodity prices extended their recent strong run with the Bloomberg Commodity Index rising 10%, with gold (+12.8%) and silver (+18.7%) leading the way.
Silver in particular has been on a tear, with a combination of dwindling supply and geopolitical risks boosting prices above $100 per ounce for the first time. In fact, prices had hit more than $120 towards the end of January before buyers ran out of steam causing a 30% fall on the last day of the month, its largest one-day loss in modern history.
It was interesting to note the role played by leveraged ETFs in the dramatic fall in silver prices, with popular funds such as the ProShares Ultra Silver ETF (AGQ) falling 60% on the day. At the time of the selloff AGQ held more than $5 billion in assets, providing investors with 2x or $10 billion in silver exposure. However, as prices go up or down the ETF is forced to buy or sell silver in order to maintain its 2x ratio; the bigger the move in the underlying price the larger the rebalance required. During the selloff this likely required AGQ to sell around $3 billion of silver, further amplifying the fall.
Meanwhile winter storm “Fern” hit the headlines in the US where surging demand for natural gas met a drop in supply as wells froze, causing spot prices (for immediate delivery) to briefly spike to all-time highs of more than $30 per Million British Thermal Units (MMBtu). Futures, typically a better gauge of underlying commodity prices, jumped around 70% with the benchmark Henry Hub peaking around $5-7 per MMBtu before crashing back to earth on forecasts of warm weather in February – despite groundhog Punxsutawney Phil’s prediction of six more weeks of winter.
A timely reminder that while commodities can often be a great diversifier in portfolios, they are not for the faint hearted.
If you’d like to discuss the market shifts discussed above, and how this might affect your portfolio or investment strategy, get in touch today.