[Market Review] The turbulence from late June to early July: What is the "shift in the tide" that investors should pay attention to?

From the last week of June to early July, global financial markets reached a major turning point. In particular, sudden changes in the crude oil market are accelerating sector rotation in the stock market. What happened this past week, and how should investors act? We summarize the key movements.

1. Market trends over the past week: What determined the winners and losers?

From the end of June to July 3rd, the market landscape changed significantly. The biggest trigger was the drop in crude oil prices due to "reports regarding an agreement to resume passage through the Strait of Hormuz."

Sectors that rose

• Data center supply chain (semiconductors/optics):The steady demand for AI infrastructure continued to support stock prices.

• Defense and space-related:Although there are signs of easing geopolitical tensions, national budget allocations remain high, and the stability of earnings is being re-evaluated.

• Finance and pharmaceuticals:Amid high market volatility, their defensive nature and profitability in a rising interest rate environment were reaffirmed.

Sectors that struggled

• Resource and energy-related stocks:Directly hit by the decline in crude oil prices. This became a factor for the relatively sluggish performance of markets with high weightings in resource stocks, such as the UK and Australia.

• Automotive and gaming-related:High semiconductor prices pressured costs, intensifying concerns over declining profitability.

• Software:Large-cap tech stocks in the US S&P 500 entered a partial correction phase, becoming a drag on the index as a whole.

2. How to interpret the results: The market has begun to seek "stability"

What emerges from these movements is a "shift from inflation concerns to economic stagnation risks."
Until now, the market was dominated by "rising interest rates = inflation concerns," but the drop in crude oil prices has changed this dynamic. With the pressure of rising energy costs, which had been a long-standing concern, easing, investors are shifting to a phase where they are more worried about "future economic slowdown" than "excessive interest rate hikes."
The fact that the German and Hong Kong markets moved significantly due to the slump in automotive-related sectors is particularly symbolic. Globally, the shift of funds from "selling goods" businesses to "structural growth and defensive" sectors like AI, infrastructure, and finance is becoming clear.

3. Future outlook: What will happen to the market during the summer?

Entering July, the market is expected to weigh two factors: "FRB policy shifts" and "slowing economic indicators."

• Pricing in monetary policy: The market has already priced in the US interest rate hike policy. Future attention will shift from "how long high interest rates will be maintained" to "at what timing they will move to support the economy."

• The singularity of the Japanese market: Japan is showing unique movements. Due to the Bank of Japan's quantitative tightening and the deterioration of domestic bond supply and demand, long-term interest rates continue to face upward pressure. While this is a tailwind for bank stocks, it could also become a headwind during a global economic slowdown.

Future strategy

As for future strategy, "sector selection" will become even more important. It may be time to consider diversifying into stocks that benefit from lower resource prices, while keeping structural growth stocks that are less susceptible to economic fluctuations, such as AI infrastructure, at the core.

Thank you for reading until the end 😊

Disclaimer
Please make final investment decisions based on your own judgment.

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