Despite its defensive characteristics, the could not escape the clutches of the sellers. Despite minor gains for market heavyweights BP (LON:) and Shell (AS:) as they tracked the higher, the overwhelming sense of a risk-off approach prevailed. The miners dipped as a result, with additional pressure falling on the likes of Endeavour Mining and Fresnillo following another downward lurch in the gold price.
Polar Capital Technology Trust topped the loser board given its eponymous exposure, while International Consolidated Airlines came under renewed pressure given the rise in the oil price. For the index as a whole, which has undergone a dreary few days in the absence of any immediate or obvious positive catalysts, a gain of 4% so far this year is of some solace to investors, even if the premier index is now languishing some 5.5% below the record high set in February.
US Markets: An Ugly Collision
An ugly collision of the forces which have propelled markets so far this year – technology, economics and geopolitics – sent investors on a selling spree which resulted in a sharp sell off across global markets.
The US led the way downwards on Friday. In a classic example of good news being bad news, the report revealed that 172000 jobs had been added in May, more than double the 85000 expected. This may be positive for the economy as it shows both resilience and growth, but with underlying inflation an increasing concern given the rise of energy prices due to the conflict in the Middle East, the pressure will be mounting on the to increase interest rates as it seeks to follow its dual mandate. Indeed, the market is now pricing in a 70% probability of a rate hike before the end of the year, a far cry from the cuts which had been widely expected just a few months previously and comfortably above the 45% likelihood which was in place just last week.
In turn, growth stocks came into the firing line on the prospect of higher rates, of which tech stocks are the main proponents. The rotation was evident with some strength in defensive stocks, while there is also some speculation that investors are freeing up funds in order to participate in the upcoming blockbuster IPOs, such as and Anthropic. In any event, the selling pressure was most keenly felt in the index, which fell by more than 4% in its worst day since last year’s tariff tantrums.
The iShares Semiconductor ETF (NASDAQ:) fell by 10%, while there were declines of 8% and 16% for and Marvell Technology (NASDAQ:) respectively. Intel (NASDAQ:) and Advanced Micro Devices (NASDAQ:) each fell by around 11%, while Micron Technology (NASDAQ:) plunged a further 13% after a decline of 8% on Thursday. Nor did the poster child escape unscathed, with Nvidia seeing a decline of more than 6%, reducing its performance this year to an 8% gain.
The inevitable pressure on Asian Markets, which saw circuit breakers being triggered in South Korea as the index fell by more than 8% at the open, was exacerbated by news that Israel had launched airstrikes on Iran, despite earlier calls for restraint from the US President. Oil prices rose by more than 4% as a result, further underlying the inflationary pressures which much of the world will be facing in the coming months.
Indeed, there will be further signs of this impact later in the week with the release of the both the Consumer Price Index and the Producer Price Index later in the week. The resultant outputs could well keep volatility levels high, particularly set against the relatively parlous backdrop which investors are facing. It could also further reduce what has been a positive performance so far this year for the main indices, whereby the , and Nasdaq remain ahead by 5.8%, 7.9% and 10.6% respectively.