Who Wants to be a Trillionaire?!
The ongoing impasse in the Middle East with the Strait of Hormuz remaining closed has been overshadowed in financial markets by the stellar performance of semiconductor manufacturers and chip companies. However, the prospect of a peace deal between the US and Iran never seemed far away. Equity markets were optimistic of a deal and buoyed by excellent earnings reports from US companies.
The surge in demand for semiconductors driven by artificial intelligence (AI) has resulted in a dramatic increase in the value of a few businesses. Last month two of those companies joined the trillion dollar club taking the total to 14 – a number that will grow when Elon Musk’s SpaceX goes public in June.
Twelve months ago, Micron Technology had a market capitalisation of less than USD100 million. Its value has doubled from USD500 million in the last 48 trading days.
- The rise in fuel prices and mortgage rates in the US has had a meaningful impact on consumer sentiment. The preeminent consumer sentiment indicator, The University of Michigan Consumer Sentiment Index, fell to a record low of 44.8 in May, its lowest level since the index began in 1952.
- UK inflation for April as measured by the Consumer Prices Index fell by more than expected to 2.8%.
- Lower inflation coupled with a perceived reduction in political risk reversed a spike in bond yields (prices fell). This caused bond yields to exhibit short-term volatility. However, a leading candidate to replace PM, Sir Keir Starmer, said he would stick to the fiscal rules – i.e. not increase government spending further. For context, in May, ten-year Gilt yields at one stage rose sharply to 5.18% before falling to 4.80% at month end.
- UK unemployment rose to 5.0%, which, coupled with the inflation improvement, should keep the Bank of England’s Monetary Policy Committee on hold and refrain from increasing official interest rates.
- The South Korean equity market index, also referred to as ‘Kospi’, leapt 24% in May buoyed by the stellar performance of Samsung and SK Hynix. Technically this is an emerging market and they are emerging market companies, but in reality, they are global businesses benefiting from the surge in demand for their AI related products.
Please remember that past performance does not predict future performance and it should not be the main reason for making an investment decision. The value of investments and income from them can fall as well as rise. The performance of Model Portfolios may differ from their performance shown above for several reasons including differences in the timing of an initial investment and subsequent portfolio changes, and also the availability of certain funds on various platforms.
