Market Musings

With many chip stocks up more than 100% this year, it should not have come as a complete surprise that there would be some profit taking. The bad news is that this was not the reason global equity markets were down 3% on Friday. “Looks like meat is back on the menu, boys!” (The Lord of the Rings, 2002), and the US fixed income markets are once again pricing in the possibility of higher interest rates in the not-so-distant future.

It is not like the writing has not been on the wall. Consumers have been facing higher prices for some time as energy costs remain elevated. Perhaps markets became complacent, comforted by the belief that inflation would once again prove transitory, or distracted by renewed enthusiasm for AI stocks and their mesmerizing performance. The reality is that global supply chains remain under pressure from geopolitical tensions, and it could take years before they normalise.

Are there any signals from other parts of the market that might offer clues as to the direction of travel from here? Gold and silver fell again, with the latter now down more than 40% from its January high. So much for the safe haven argument. The dollar is stronger, but still within the recent trading range. The big surprise is that oil prices moved sharply lower on a day when Iran didn’t dominate the headlines. That seems to suggest investors are beginning to worry more about growth than inflation.