The technology pendulum continues to swing away from those companies investing billions of dollars into AI infrastructure to those providing the goods.
Further evidence of rotation and a broadening out of investor interest is found in the smaller cap index, which is now ahead by 20% so far this year, eclipsing the gains of the main indices, where the has added 8%, the 7.5% and the 9.1% despite some recent weakness.
UK markets were unable to escape the clutches of the generally dour sentiment, slipping in opening exchanges as weakness in the mining sector reflected a risk-off approach, while the likes of Polar Capital and Scottish Mortgage fell foul of their tendency to be invested in the tech trade. There was some relief from Barratt Redrow after a broker upgrade and British American Tobacco, which launched its new share buyback programme.
These were not sufficient to stem the tide, however, and a further fall in the oil price weighed on BP (LON:) and Shell (LON:), whose influence on the index is proportionate to their pure size. The is now ahead by 5.5% in the year to date while the has seen its progress pegged back again, albeit higher by 2.8% so far this year. The trader and investor reticence which is keeping some at bay on global markets is inevitably filtering through to sentiment on home shores for the time being.
In addition, if capital expenditure was becoming a concern, there were two prime examples of the emerging effects. Apple (NASDAQ:) shares fell by 6% after announcing that it would be hiking prices on its iPads and MacBooks due to rising demand for memory and storage. Microsoft (NASDAQ:) shares fell by more than 3% for similar reasons, with surging component costs enforcing price rises on its Xbox gaming consoles. Other members at the previous technology vanguard, such as Alphabet (NASDAQ:) and Meta Platforms (NASDAQ:) also dipped as a read across on the semiconductor spend.
Inevitably, this has led to some concerns that the margins of the mega tech companies could be crimped and the performance of the Magnificent Seven is a mixed picture as a result. Whereas the likes of Alphabet and Nvidia are clinging on to gains of 8.5% and 3.7% respectively so far this year, Microsoft has fallen by 25%, Tesla by 14% and Meta Platforms by 16.5%, marking something of a shift away from the tech darlings which have driven market gains over recent years. Overnight, the sell-off was most keenly felt in Asia, where South Korea’s and Japan’s plunged by 8% and 5% respectively having both hit record highs earlier this week, with pointing again to a lower open later.
On the flip side, the semiconductor providers have moved into the centre of investor attention. The likes of Qualcomm have risen by 18% so far this year, but this is eclipsed by a broader buying frenzy whereby, for example, the iShares Semiconductor ETF is ahead by 108% over that period. At the top of the tree, however, is Micron Technology, whose shares have spiked by an astonishing 285% so far this year, latterly boosted by a set of blowout quarterly numbers and a positive outlook which ominously (for the buyers) pointed out that it could not anticipate when memory supply would catch up with increasing demand.
On the economic front, the Fed’s preferred measure of inflation, the , showed a rise of 0.4% in May, versus estimates of 0.5% and to 4.1%, which was in line with expectations. , which excludes the effects of food and energy prices, rose by 0.3% and 3.4% year on year, both in line with estimates, with some general relief resulting from the fact that the headline number was not even higher given the inflationary effects of the Middle East conflict. As such, the bulls who are largely to be found in the equity market are hoping that this marks peak inflation and therefore less likelihood of monetary tightening, while the bears who mainly reside in the bond market are still pencilling in at least one interest rate hike this year.