Markets Pause as AI and US Resilience Anchor the Outlook

Market Comment – 30 June 2026

Markets ended the half‑year under a bit of pressure. Yet this feels more like a pause than a rupture. After spectacular gains in semiconductors, energy, and power stocks, profit‑taking was inevitable. In many respects, it is healthy. Some of the excesses in the market have been tempered, valuations have adjusted, and the base that underpinned gains over the past few years remains intact.

The big story of the year so far has been oil. Prices spiked dramatically in the early months of the Iranian conflict, rattling equities and bonds alike. Since then, volatility has defined the market. We’ve experienced sharp rallies on supply fears, followed by steep declines as peace proposals gain acceptance. President Trump’s peace deal with Iran brought a measure of stability, but at a political cost. Critics argue it weakened his credibility by offering concessions without clear guarantees. Markets, however, have focused less on the politics and more on the tangible impact of falling oil prices. For now, calm prevails, though, as we witnessed recently, the Straits of Hormuz remain a risk.

Overlaying this has been the Federal Reserve’s hawkish stance. Chair Kevin Warsh has made it clear that inflation above 2% cannot be tolerated, and rates may remain elevated until 2028. Sentiment was jolted by the prospect of higher borrowing costs with housing and credit feel the most strain. Bond yields, too, have climbed. The disconnect between buoyant equities and strained fixed income is glaring, but it reflects a recalibration rather than a crisis.

Artificial intelligence continues to dominate discussion. Businesses like ASML, the sole supplier of sophisticated lithography machines, has become indispensable with a backlog in orders exceeding €40 billion. This is structural demand, not a passing spike. Semiconductors have surged, driven by AI contractors requiring vast storage and bandwidth. Capacity expansion at manufacturers TSMC, Samsung, and Intel underscores confidence in AI’s trajectory. Hyperscalers, meanwhile, are investing trillions of dollars in cloud infrastructure, monetising AI services through subscriptions and data centre leasing. Yet risks appear. Rising chip costs have forced Apple and Microsoft to raise product prices, which consumers have resisted.

Large‑cap AI stocks have underperformed, reflecting investor doubts about profit sustainability, though earnings forecasts project ongoing optimism. Consumer-facing operations may encounter margin pressure, but the outlook for enablers like ASML, semiconductors, and hyperscalers remains resilient.

Beyond oil, power and energy companies tied to data centre infrastructure continue to look attractive. Their services are indispensable to the AI boom, and demand shows no sign of slowing. Investors see them as stable plays in an otherwise volatile landscape, with earnings visibility and pricing power that stand out.

Another headline event was the SpaceX IPO. The listing attracted extraordinary attention, oversubscribed many times over, highlighting the depth of liquidity still present in global markets. The share price initially rose like a rocket before settling back to earth, resting at a modest premium above its issue price. Importantly, the rise and fall caused no major fallout in the market. Instead, the episode demonstrated that even record‑breaking capital raises can be digested smoothly, reinforcing confidence in market resilience.

Safe havens, by contrast, have faltered. Gold, platinum, and even Bitcoin have lost their lustre. Higher real yields have undermined precious metals, while crypto has suffered from regulatory pressure and waning enthusiasm. The collapse of these shelters underscores the conviction that US assets, particularly equities, remain the place to be.

Through all this, the US economy has shown remarkable buoyancy. Retail sales remain firm, housing is under pressure but not collapsing, and corporate earnings (outside of tech) have held up. Consumers continue to absorb higher gas (petrol) prices, and businesses are investing in productivity gains. This hardiness underpins equity strength and explains why global capital continues to flow into US assets.

Positioning, therefore, requires balance. In equities, favour US exposure - semiconductors, hyperscalers, and power infrastructure are structural beneficiaries of AI demand. In fixed income, shorter maturities offer better rewards. Commodities remain strategic, with oil volatile and precious metals unattractive until real yields stabilise.

The first half of 2026 has been defined by oil volatility, a hawkish Fed, the AI boom, and the landmark SpaceX listing. Safe havens have collapsed, bonds are under strain, but equities, especially US equities, remain resilient. Recent market pressure reflects profit‑taking after outsized gains, not systemic weakness. The resilience of the US economy continues to anchor global markets, even as uncertainty lingers.