Wall Street recently saw record-setting performance, primarily driven by artificial intelligence chip stocks. The S&P 500 and Nasdaq both climbed to new all-time highs, with Nvidia shares leading the surge. The presence of tech leaders with Donald Trump in China was seen by some investors as a positive market signal.
However, this bullishness masks underlying market fragmentation. US market watcher Jason Goepfert noted a record nine per cent of S&P 500 companies hit 52-week lows on the day it peaked. Morgan Stanley’s Mike Wilson suggests this weakness indicates the market has priced in the Iran conflict, anticipating a broader recovery. Others argue market strength is narrower than it appears, suggesting the AI boom faces real-world challenges.
Inflationary pressures pose a significant hurdle. Following elevated consumer price data, US producer price inflation shocked markets by hitting six per cent in April, well above expectations and the highest since December 2022. Concurrently, a US$25 billion ($34 billion) auction of 30-year US Treasury bonds saw yields reach five per cent, the highest since 2007. This underscores persistent inflation worries globally.
Macquarie strategist Viktor Shvets highlights the “insanity premium”—the returns investors demand for political and policy chaos. He estimates past tariffs added 0.5 per cent to US inflation, and an unresolved Iran conflict could add one percentage point via an energy shock. Shvets questions if central banks must now view these ‘one-off’ shocks as recurring, implying persistently higher interest rates and potentially threatening the current AI-driven market strength.
