Four observations on asset markets

A personal view from Debapratim De, Deloitte’s Chief Economist in the UK.

Four observations on asset markets

Despite the war in Iran and the greatest disruption to energy supply on record, this has been a good year for stocks. Global equities are up 9% so far this year, after rising by 20% in 2025. Investor enthusiasm for risk assets has held up well, underlined last month by the biggest IPO in history, as Elon Musk’s Space X listed for $1.78 trillion.

This performance partly reflects the resilience of the global economy – the energy shock has not been as destabilising as initially feared. In April, a net 36% of respondents to the Bank of America Fund Manager Survey expected a weaker global economy over the next 12 months. Last month that number was just 1%.

Besides this overall resilience, here are four emerging themes from asset markets this year.

The 'Magnificent Seven' underperform

Global technology stocks are up 20% this year, extending their bull run to almost three years. If you had bought this basket of equities in late 2022, you would have tripled your investment by now. A group of US tech behemoths, called the 'Magnificent Seven', has come to symbolise this rally. However, their shares have dropped nearly 10% in June, with the group now down 2% since the start of this year. Except Alphabet, all the members of this group have underperformed the S&P500 this year, with Microsoft, Meta and Tesla selling off.

Analysts suggest two reasons for the group’s underperformance. First, investors might be reducing exposure to these US tech behemoths due to concentration risk. The seven firms have collectively risen in value by an astonishing 200% since early 2023, increasing their share of the S&P500 from 22% to 34%. Second, some point to growing investor concerns about the hundreds of billions of dollars these firms are spending on AI infrastructure, despite significant unknowns about payoffs. The Bank for International Settlements recently compared the AI investment boom with the dotcom era, and the railway mania in Britain in the 1840s, concluding that even episodes of genuine technological breakthrough “attracted capital in excess of what the commercial returns could ultimately justify.”

Investors are buying the AI “picks and shovels”

Investors are rotating away from the firms spending billions of dollars on AI infrastructure and towards those producing it. The Philadelphia Semiconductor Index, which tracks US chip manufacturers, is up 89% year-to-date. These valuation increases have primarily been driven by higher earnings. US chipmaker Micron last month reported its profits surged to $28.2bn in its latest quarter from $1.9bn in the same period last year.

This “picks and shovels” boom is not confined to the US market. South Korea’s stock market, KOPSI, is up 90%, driven by chipmaker SK Hynix which has more than tripled in value this year, surpassing Samsung (which is up more than 170%, thanks to its chipmaking arm) as the country’s most valuable company. Shares in Dutch company ASML holdings, which sells machinery crucial to chipmaking, have risen by 87%. ASML now accounts for roughly 15% of the Dutch equity market. Tokyo Electron, a Japanese chipmaking equipment manufacturer, has seen its shares rise by 125% this year.

European defence rally reverses course

European defence stocks were one of the big investment stories of last year. Shares in the sector have been on a tear since Russia’s invasion of Ukraine in 2022, and doubled last year, driven by Berlin’s commitment to significantly raise military spending and NATO allies' agreement to raise defence spending to 5% of GDP. This year, however, that rally has gone into reverse, with European defence stocks down 7%, led by a 30% fall in German defence firms.

As government bond yields have risen – in part due to the expectation of higher inflation delivered by the energy shock, investor concern about how these spending commitments will be funded has grown.

Some equity analysts also point to a shift in the nature of warfare. Emmaneul Cau, head of European equities strategy at Barclays said “investors are looking for more tech-orientated defence stocks” as the conflict in the Middle East has shown the importance of drones. Shares in French drone producer Parrot are up around 35 per cent this year and those in Swedish military IT specialist MilDef have risen more than 50 per cent.

Gold bucks safe haven trend

The price of gold has fallen 23% since the start of the war in Iran, bucking the historical trend of the precious metal attracting safe haven flows in times of economic or geopolitical distress. The fall ends a multi-year rally – the gold price almost tripled in value from the start of 2023 to its peak in February of this year, buoyed by concerns about levels of government debt and inflation, and supported by significant retail investor demand. 

Higher interest rate expectations have raised the appeal of interest-earning assets compared to gold, which yields no income while incurring storage costs. A stronger US dollar has also made gold more expensive for non-US investors.