Market Matters- Learning to Live with Geopolitical Uncertainty

• Through 10 July, markets remained calm despite renewed US–Iran tensions. The S&P 500 returned 1.25% and MSCI China 3.08%, while the FTSE 100, Europe ex UK, emerging markets and Asia ex Japan fell by 1.65%–2.00%; the subsequent escalation around Hormuz has increased the risk of a stronger market reaction.

• China was the strongest-performing region, helped by renewed interest in attractively valued technology and AI-related companies. The rally is encouraging, but concerns over regulation, property, demographics, geopolitics and shareholder returns remain.

• The AI investment cycle continued to spread into memory chips, semiconductor equipment, power and infrastructure. SK Hynix’s $26.5 billion US offering demonstrated strong demand for high-bandwidth memory, although it is too early to conclude that AI has permanently reduced the sector’s traditional cyclicality.

• The Atlanta Fed’s 1.4% Q2 GDPNow estimate concealed stronger consumer spending and business investment. The Federal Reserve held rates at 3.50%–3.75%, with AI-related demand, tariffs and energy disruption keeping inflation risks elevated and reducing the prospect of near-term rate cuts.

• US inflation data and results from the major banks, ASML and TSMC are the next important tests. Strong earnings could support further gains, but a healthier market would require leadership to extend beyond AI into financials, industrials, healthcare, smaller companies and international equities.