I have expressed my concern for the last few weeks about the parabolic price rises of technology companies mainly in the chip and semiconductor manufacturing space, I noted that that the tops of these “rocket ship“ share price up moves are only obvious in hindsight and, and by the same token, the subsequent fall is difficult to gauge until it's over. In other words, challenging investment decisions. I also commented in my “Debbie Downer” email of May 25 that the end of the Iran – USA hostilities, would focus investors attentions elsewhere: the lingering effects of the war on inflation, possible weakening of global economies and higher inflation forcing central banks to reverse course, instead of lowering rates this year increasing them. All concerns potentially a challenge to this year's impressive global stock market gains. Especially vulnerable are those indices or markets whose market weights have a high percentage of technology shares such as the NASDAQ in the US or South Korea or Taiwan.

Both concerns seem to play out in last week's market performance: the S&P 500 and the NASDAQ fell every day for the first time since April 2024, losing 2% and 4 ½% respectively. Taiwan and South Korea markets both dropped over 5%, although to be fair one must note that because their high concentration of chip and memory making companies, both indices have experienced huge gains this year. Overall it was a losing week for the majority of European, Asian and Emerging Market indices and the prospect of higher interest rates in the US making their government bonds more attractive potentially means an inflow into the US dollar to fund these purchases, no surprise then that major currencies, including our dollar, also lost ground against the greenback. As a reference point currently the two-year US treasury bond pays 4.18% while in Canada it's only 2 ¾. Should the US FED follow-up on its hints to raise their interest rates 1 to 3 times this year and the Bank of Canada not follow suit, seeing our loony dip under $0.70 would not be a surprise.

To illustrate how the Middle East conflict has already impacted inflation, the latest monthly report showed US inflation running at its highest level in more than three years as Thursday’s Consumer Expenditures Price Index report showed an annual rate of 4.1% in May, a far cry from the US central bank's target of 2%. I'm sure we'll see similar inflation increases in Canada in the months ahead.

On the other hand, and with economists, there's always an other hand, despite the big selloff in chip and memory company shares and the ongoing weakness in the investors darlings of a couple of years ago, the Magnificent Seven, traditional defensive sectors in the US such as Healthcare, Real estate and Utilities had a very impressive week with gains anywhere from four to over 7%. Also reported last week the of U.S. consumer sentiment improved dramatically amid moderating gasoline prices. The Survey results showed that sentiment rose to a final June reading of 49.5 from May’s 44.8 figure. Also noteworthy the number of US CEOs predicting higher capital expenditures over the next six months rose to over 50%, the highest level in 3 1/2 years. All positive news to keep the US economy growing, another indicator will be the US jobs report on Thursday, market strategists will be watching to see if it can follow-up on the previous month's impressive gains. If the answer is yes, and especially if the gains are in key economic sectors, it will be further support confirming a broader based and resilient US economy.

So I ponder if we are perhaps witnessing a changing of the guard in the US stock market indices and while the heady rise of many technology-related companies might be over for a while, strength in the more broad-based value companies might just be beginning.  

Dennis