June 2026 Review

Give Peace a Chance

The second quarter’s bounce in equity markets post March’s war-related fall (which erased the gains from January and February) was largely due to the strong price performance of AI-related companies, notably semiconductor and chip manufacturers.  Whereas last year investors were concerned about the concentration risk of the ‘magnificent 7’, that same risk has shifted to the increased influence of AI-related companies. As the chart below sourced from Bianco Research illustrates, 41 AI-related companies have grown to make up 45% of the value of the US S&P 500 equity index.

Their price surges have left question marks over whether some valuations have become stretched and future earnings forecasts too optimistic.  That fear was heightened with the initial public offering of a small percentage, but significant in US Dollar terms, of Elon Musk’s SpaceX.  Nonetheless, global equities (‘stocks’) have enjoyed their best quarter for over five years as the graph below from Bloomberg illustrates.

Looking forward, the US second quarter earnings season which begins on July 13^th, shows an optimistic outlook, but as the chart below from Goldman Sachs Research illustrates,  previous earnings estimates have a habit of being exceeded but not necessarily when estimates are this high.

• A US-Iran memorandum of understanding was signed on June 17^th, earmarking US$300 billion for reconstruction and reopening the Strait of Hormuz toll-free for sixty days. Iranian drones struck two transiting vessels by 25 June, the US retaliated. So, the question is, will it hold?  Nevertheless, oil prices have plummeted from recent highs.
• UK Consumer Prices Index for May showed a rate of inflation of 2.8% unchanged from April.
• The Bank of England maintained its Base/Bank Rate at 3.75% when the Bank’s Monetary Policy Committee (MPC) met on Thursday, June 18^th.
• The European Central Bank (ECB) raised its deposit rate to 2.25%, its first hike in nearly three years although with inflation yet to rise meaningfully in response to higher oil prices and economic growth hard to come by, it is hard to understand why rates were raised. The Bank of Japan lifted rates to 1.0%, a level not reached for thirty years but part of the normalisation of Japanese monetary policy. New US Federal Reserve (Fed) Chair and Trump appointee Kevin Warsh held his first Federal Open Market Committee meeting which held rates at 3.5% to 3.75%, but with a bias to raise rates later this year.
• In the world of powering artificial intelligence (AI), US chip manufacturers Broadcom and Micron Technology underwent mixed fortunes in their earnings announcements: record quarterly results for Broadcom were punished because their AI revenue expectations came in fractionally short of what was expected by analysts. The AI capex cycle is now being asked to prove its worth.  However, Micron’s earnings surpassed estimates.
• Gold continued its fall after Fed Chair, Kevin Warsh, demonstrated a greater resolve to defeat inflation than perceived before his appointment.
• UK Prime Minister, Sir Keir Starmer resigned.  His likely successor, Andy Burnham, committed to fiscal discipline which gave stability to UK Government (gilt) bond yields and Sterling.

Your Money

It has been a positive first half of 2026 but we remain cautious of market risks from leverage, AI-related borrowing and rising private debt market defaults (companies not being able to make interest payments).  Pier portfolios have been mitigating portfolio risk by being valuation conscious (avoiding companies where future earnings expectations have become unrealistic) and reducing specific equity risk from a particular company or companies.  In June, a decision was made to allocate to the S&P Global Dividend Aristocrats (out of  US equities) as a defensive measure.  The S&P Global Dividend Aristocrats invests in the equity of quality companies that have either maintained or increased their dividend over the past ten years.

Below is the performance of the Pier portfolios for the month of June, year to date to end June 2026 plus the last quarter.