Headline Markets mask a more volatile month
Global equities were slightly weaker in June with the MSCI World and S&P 500 Indices falling 0.7% and 1.0% respectively, while US small cap stocks gained 3.7% indicating renewed interest outside mega-cap tech.
These relatively small moves belied some wild moves underneath the headline numbers with the SOX (Philadelphia Semiconductor Index) recording nine daily moves of more than +/-5%, before closing the month up 11%.
AI investment boom faces a reality check
Meanwhile the Magnificent 7 bore the brunt of any AI scepticism, falling around 10%, wiping $2.3 trillion off their combined value. While these companies have historically been cash cows they have recently turned to selling both debt and equity to finance their seemingly insatiable demand for chips and data centres.
The selloff was aggravated by investors looking to fund a series of super-sized capital raises with Alphabet alone raising $85 billion last month, trumping the SpaceX IPO as the largest equity raise ever. Not all the capital raised has been earmarked for new investments with reports suggesting up to $30 billion of Alphabet’s cash haul could be set aside to pay tax on employee stock awards that have been used to lure top researchers in the AI talent war.
The SpaceX listing got off to a strong start with the share price briefly touching $200, although it has more recently settled around $160. As it enters the Nasdaq Index it will be interesting to see whether the shares gain support from the forced buying, although perhaps it is more likely to experience a selloff as professional investors exit.
June being a big month for index rebalances, where companies are added and deleted, it was notable that the index trading team at hedge fund Millennium booked a $3.7 billion trading profit. Not a bad month’s work when you consider the traders typically keep around 25% of the profits, and a stark reminder that these profits represent a hidden cost borne by index investors.
Geopolitics eases as oil retreats
Meanwhile the ongoing Middle East conflict has died down following the June 17th ceasefire between the US and Iran, allowing for the delayed funeral for Iran’s former supreme leader Ayatollah Ali Khamenei and just in time for the 4th of July celebrations in the US.
After peaking at more than $110/Bbl., oil prices have recently fallen back below $70/Bbl., with reports that a decline in Chinese demand has been the largest swing factor. Oil volumes transiting the Straits of Hormuz remain well below their pre-war levels however most economists are currently downplaying the risk of further shortages.
Commodities reverse sharply
Oil was not the only commodity under pressure, in fact the Bloomberg Commodity Index fell 8.8% with gold (-11.7%) experiencing its worst month since June 2013. Industrial metals were hit even harder with aluminium (-19%), nickel (-15%) and lithium (-17%), leading to heavy losses across the resources sector.
While the stronger USD is a headwind for commodity prices the 5% gain versus the NZD will support USD assets, at least to the extent that we remain unhedged.
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.
Check out our latest Investment Insights here.