AustralianSuper’s chief investment officer, Mark Delaney, noted a cooling in markets, stating, “The fizz has come out of the Coke bottle.” AustralianSuper is one of Australia’s largest superannuation funds, managing investments on behalf of its members to provide retirement income. Delaney, who is retiring next June, believes a stable market is preferable to a bubble followed by a sell-off.
While AI-related stocks initially surged, recent performance indicates a shift. Deutsche Bank data reveals that while AI stocks gained significantly earlier in the year, a majority have since declined. Some companies, like CoreWeave and Oracle, have experienced substantial reversals, despite the S&P 500 and major tech stocks showing more resilience, largely driven by Google’s performance.
Despite the AI sector’s cooling, Bank of America’s survey indicates high investor bullishness. Cash holdings among institutional investors have reached record lows, reflecting confidence in a “run it hot trade,” fuelled by potential Federal Reserve easing and stimulatory fiscal policies. However, Deutsche Bank warns of the risk that a re-accelerating US economy could lead to increased inflation and, eventually, rate hikes.
The Reserve Bank of Australia’s shift towards potential rate hikes and similar trends in Europe and Canada contrast with the US, where the Fed seems inclined towards easing. Strategists like Societe Generale’s Albert Edwards suggest that rising rates, excluding the US, pose a significant threat to investors, recalling how rate hikes by central banks have historically triggered market downturns. Investors should remain vigilant about the looming risk of rising interest rates.
