Global equity markets were stronger in July with the MSCI World Index rising +1.3%. Although markets were relatively quiet compared to prior months, it was perhaps the calm before the storm as a new round of global tariffs are due to hit following Donald Trump’s August 1st deadline.
US equities rose +2.2% with the tech sector (+5.2%) leading the charge on the back of strong earnings results. With US earnings season in full swing more than 80% of S&P 500 companies have so far beaten Q2 estimates. Nonetheless it has been the standout results for the largest tech companies that have been getting the headlines, with Microsoft becoming the second company to hit a $4 trillion valuation. As the following chart shows, mega cap companies have been eating the world, accounting for virtually all the S&P 500’s earnings growth over the last three years.
However recent economic indicators in the US are painting a less than rosy picture with reports of tighter profit margins, weakening employment and slowing growth. In fact, the latest jobs numbers were bad enough that in an incident reminiscent of Soviet-era purges, Donald Trump fired the head of the Bureau of Labour Statistics (BLS), claiming she had rigged the numbers to make him look bad.
Meanwhile the winter of discontent continued for healthcare stocks (-3.3%), which have now underperformed the tech sector by more than 100% over the last three years (+4% vs +112%). Former market darling Novo Nordisk (manufacturer of the blockbuster weight-loss drug Ozempic) fell -28% in the month after downgrading sales and profit growth and is currently down almost 70% from its 2024 highs.
This is a timely reminder that markets will often tolerate all sorts of fantastical growth stories but can be brutally efficient when the growth fails to meet expectations. One suspects there will be a similar day of reckoning if the profits don’t flow from the massive AI infrastructure build-out.
To put it in context, the “Magnificent 7” have spent more than $100 billion on data centres in the last three months alone, surpassing the peak of the telecoms and internet boom and in the last six months has contributed more to US GDP than all consumer spending.
And it’s not just datacentres that are attracting a tsunami of investment dollars, the battle to attract top talent has seen AI researchers attract offers that put the UK’s Premier League footballers to shame. After AI startup Thinking Machine Labs (TML) rebuffed a takeover offer by Meta, CEO Mark Zuckerberg reportedly returned with offers for the top AI talent ranging from $200m to more than $1 billion, all of which were also turned down.
IPOs heating up
Meanwhile the US IPO market is showing signs of life. Shares in cloud-based design company Figma closed up 250% following its IPO,valuing it at almost $70 billion.
This comes less than three years since the collapse of Adobe’s $20 billion offer for the company. The strength of the Figma launch is likely to pave the way for a host of large tech companies to come to market in areas such as payments (Stripe), buy-now pay-later (Klarna), and AI (Databricks).
If you’d like to discuss how global market shifts impact your portfolio, please get in touch with Mark or Sam.