Global equity markets experienced an unpredictable start to the week following retracted social media posts from Donald Trump concerning a “largely negotiated” peace deal with Iran. While initial excitement briefly saw oil futures plunge and equities surge, the swift climb-down left investors questioning broader geopolitical impacts. This episode highlighted Australia’s particular exposure to energy price volatility, with the ASX 200 lagging Wall Street amidst efforts to control domestic inflation.
A more profound concern is now emerging from the unprecedented concentration in artificial intelligence (AI) stocks. Bank of America’s chief strategist, Michael Hartnett, notes that with SpaceX, OpenAI, and Anthropic listed, 48 per cent of the S&P 500 could be concentrated in just 13 big AI stocks, a level surpassing historical bubbles like the dotcom era. The trend impacts Australian super funds, whose index holdings include resource giants like BHP and Rio Tinto, rallying on anticipated copper demand for data centre build-outs.
The AI investment surge also extends to credit markets, with AI-related debt from tech giants like Microsoft, Amazon, and Alphabet crowding out government bond supply. Venture capital and infrastructure deals are similarly dominated by AI, with a third of all US capital expenditure now tech-related. This creates a dilemma for investors and super funds, as the Bank of America Bull & Bear Indicator signals euphoria – a historical sell signal – yet few wish to miss the boom.
Compounding these worries, rising bond yields worldwide are seen as a significant “bubble popper.” Elevated yields reflect ongoing inflation fears and high government debt. Société Générale’s Albert Edwards and JPMorgan chief executive Jamie Dimon warn that higher borrowing costs could “break things” with no guarantees yields will decline. Edwards suggests investors heed history, questioning if the global bond bear market won’t ultimately impact the US economy and equity bull market.
