Hotter summer weather appears to have induced a period of slumber within markets over the last month which is a welcome change from fast paced macroeconomic events earlier in the year.
Having entered 2025 with high levels of optimism towards the US economy, and US equities, the market narrative has moved like a pendulum, swinging to a deeply pessimistic view towards the new Trump administration in April, before settling to a more middle state in June.
It’s clear that receding geopolitical tensions have been a major factor in drawing a more positive narrative back into the market. The threat of rising global trade barriers and the possibility of a major military escalation in the Middle East sent shock waves through both equity and commodity markets, only for stunning reversals to unfold in the weeks after each event.
From trade wars to real wars, June has therefore marked a material de-escalation on all fronts with progress being made on trade pacts and ceasefires. It could be unsurprising, therefore, that the S&P 500 has returned to a fresh peak amidst fading pessimism.
To us, this signals just how powerful some of the underlying secular trends can be in pushing asset prices to new highs. The growth in the artificial intelligence (AI) trend appears to be moving in one direction, with large technology companies continuing to invest, continuing to develop, and continuing to push new AI-related products in the hope of leading the new revolution.
Elsewhere, companies outside the technology sector are integrating AI within their everyday businesses in an attempt to capitalise on potential productivity gains.
And yet, there are signs of cracks at the edges of this recent period of market strength. Having fallen some way in the recent volatility, market valuations have moved back towards their highs. Questions are still being asked about the role of the US dollar as America looks to its own interests. Whilst European investors are questioning their reliance on the US, from common security to economic partnership.
Taken at face value, each of these factors will likely create opportunity for global investors such as us. From attractive entry points in less loved, cheaper companies, to high quality assets that have been temporarily caught up in market volatility, our fund managers are continuing to be proactive as they scour global markets for new ideas.
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