Week ended June 26, 2026: stocks and bonds diverge

• Global equities were volatile and generally weaker last week, driven by shifting sentiment around global semi-conductor companies.

• Lower oil prices and lower interest rates have driven investors back into out-of-favour “more boring” stocks / indices like the FTSE, the DJIA and the Russell 2000, all of which are also “tech light”.

  
  

• US Treasury yields were lower across the curve as a combination of lower oil prices and a perceived more hawkish Fed have improved inflation expectations.   A more hawkish Fed has also contributed to Dollar firmness.

• As inflation expectations improve, gold and Bitcoin have been casualties; both continue to weaken.

  
  

• Friday is a market holiday in the U.S. in celebration of the 250^th birthday of the USA (on Sat, July 4^th).  As a result, most trading this week will be concentrated in the first half of the week, which is also the end of the second quarter.

• This holiday-shortened week will see the release of June jobs data for the U.S. (on Thursday before open), as well as PMI data in Europe and China, and preliminary inflation data for June for the Eurozone.  

• The next central banks meetings will start mid-July (ECB on July 22/23, FOMC on July 28/29), as will second quarter earnings releases (banks to start, JPM on July 14^th). 

  
  

• See "Market Data and Tables" below for updated data tables.

More about semi-conductor stocks

Global equity markets bounced around most of last week, mainly due to volatility in semi-conductor stocks which are – at least to me – nothing more than a strong “first derivative A.I. effect.”  I wrote about the semi-conductor value chain in my blog on Friday (article here), should you wish to check it out. 

It seems that nearly every story in the financial press recently has had something to do either with semi-conductor companies or with companies on the other end (meaning the wrong end) of strong global demand and inadequate supply of value-added chips.  For example, US company Micron Technology’s (MU) trading range (difference between weekly high and weekly low) last week was 26.6%, and South Korean chip company SK Hynix’s trading range was 21.8%.  This is not the price range in a month, a quarter or a year – it’s in one week!  And on the receiving end of the up-and-down shifts in sentiment of semi-conductor stocks are customers that have a meaningful cost component of their products tied to semi-conductor prices, like Apple and Microsoft. 

The main driver is simple to understand: future demand for chips, especially high value-added chips like memory chips, far exceeds supply, attributable largely to A.I.-driven needs.  For now, value-added semi-conductor companies are putting up the numbers to support strong expected future demand, and that’s cascading through to the costs of semi-conductors.  Last week, Apple (AAPL) announced that it was raising the prices of MacBooks and iPads $200 because of higher costs of memory chips.  And in the same week, MU put up incredible numbers and aggressive forward guidance suggesting that demand for high value memory chips was insatiable.  Similarly, the cost of data centres must be increasing since semi-conductors are very much the “picks and shovels”, and this is raising concerns for stocks of hyper-scalers as investors scrutinise the effect of concurrent huge capex and higher semi-conductor costs on cash flows and margins.  The table below illustrates some of the price action and valuations data from last week for companies in the semi-conductor value chain (first table), and hyper-scalers, customers and software companies, the latter of which have also been under pressure more broadly from A.I. threats. 

 I’m not about to pile in to any of the names above that I don’t already own, although the valuation metrics do seem to suggest that some of the semi-conductor stocks that have seen their stock prices rocket higher this year might not be unfairly valued if they can continue to grow their earnings.  Without elaborating, this is not necessarily a foregone conclusion.     

PCE

PCE for May was released mid-last week, and both headline and core PCE came in more or less as expected.  Headline PCE was 4.1% YoY, the highest since April 2023, and core PCE was 3.3% YoY, the highest since November 2023.  You can find the official BEA report here.  Lower oil prices should filter through to inflation figures in the months ahead. Coupled with optimism that the US has seen the worst as far as inflation this cycle, new Fed Chairman Warsh’s more hawkish approach seems to have settled bond markets.  US Treasuries had a solid week last week across the entire curve. The PCE report also suggested that US consumers are continuing to open their wallets as confidence slowly improves.

SpaceX mega-bond (following mega-IPO)

Perhaps I just don’t get it, but I am shocked that a company that has never made money can garner investment grade ratings (Baa1/BBB/BBB+) and issue $25 billion in a multi-tranche bond issue (five to 30 years) within two weeks of going public.  SpaceX certainly can’t be faulted for taking advantage of investors’ willingness to fork over billions of dollars of capital in relatively cheap debt.  But what are investors thinking?  Here is the SpaceX press release regarding the huge bond issue.  I can’t get secondary levels, but understand that the bond issues are mostly underwater (meaning trading below par).

Bubble?

“Bubble” is the most often mentioned term by pundits these days, especially when speaking of the recent run in semi-conductor shares and heightened volatility more broadly across global equity markets.  However, it seems like the term “bubble” has been bantered around for over a year now, and still, stocks just keep grinding higher.  At some point, sentiment will shift, but it is impossible to say a lot about the timing or the catalyst.  In this respect, you might want to listen to a recent interview with Ruchir Shamar, chairman of Rockefeller International , conducted by #Unhedged co-anchors Rob Armstrong and Katie Martin (both #FT).   You can find the podcast on Spotify here (29 minutes).  In a nutshell, Mr Shamar believe that the catalyst for the bubble (if it is a bullet) to deflate is likely to be Fed tightening, similar to the precursors to the bursting of the dot.com bubble in 1999 and the meltdown in Japanese stocks that started in 1990. 

MARKET DATA AND TABLES

Below are tables of key indices and asset prices that have been updated for the past week. 

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