Global stocks hit records on AI trade, Iran deal prospect

(Aug 5): Global stocks climbed to a record as hopes rose for a US-Iran deal to open the Strait of Hormuz, while investors renewed bets on the artificial intelligence (AI) trade, driving gains in chipmakers.

S&P 500 futures rose 0.3% after the index hit another all-time high, buoyed by a rally in technology stocks. Europe’s Stoxx 600 hit a new record, as did MSCI’s All Country World Index.

Brent crude held around US$80 a barrel after Tuesday’s 5.3% plunge, as Axios reported that Washington, Tehran and Oman were nearing an agreement to resume oil flows through the Strait. Treasuries were steady and gold advanced as traders curbed expectations for interest-rate hikes.

“As with most episodes of geopolitics, markets tend to get desensitised. All that matters is oil prices and as long as oil prices come back to the US$75-US$80 dollar range, markets can focus on fundamentals, which remain robust,” said Mohit Kumar, a strategist at Jefferies International. “Earnings have been solid and there is still a lot of liquidity out there. Positioning is very clean, which sets a nice backdrop for a further rally in risky assets.”

Strong results from technology megacaps plus the recent correction have brought valuations to more reasonable levels, helping to restore investor confidence after a bout of volatility in AI stocks triggered losses at several hedge funds last month. However, a cautious tone lingered as SpaceX shares fell 7.5% in extended trading after the company projected higher-than-expected spending on its AI business. Advanced Micro Devices Inc dropped about 9% after giving an underwhelming sales outlook.

SpaceX had “a good quarter at the core, but we prefer to stay on the sidelines given complex lockup expiry structures leaving the stock vulnerable to technical movements, as well as positioning which appears to be heavily short at present”, said Andrea Gabellone, head of global equities at KBC Securities.

The MSCI World Semiconductor Index had tumbled more than 20% from its peak in June, driven by worries around the sustainability of AI spending boom and progress in China’s advanced chipmaking. The gauge has rebounded 15% since then, taking its gains this year to 42%.

Earlier, a US chips gauge posted its strongest four-day gain since 2020.

“What’s new in the AI trade is that there’s a lot of dispersion within semiconductors or hyperscalers,” said Roland Kaloyan, head of European equity strategy at Societe Generale. “That means clients such as equity portfolio managers who can’t invest in indices have challenging stock picking choices to make.”

The three pressures behind the recent sell-off — AI spending concerns, higher bond yields and the increase in oil prices — are all easing at the same time, said Charu Chanana, chief investment strategist at Saxo Markets in Singapore. Strong earnings are reassuring investors that AI demand remains intact, while lower oil and bond yields are taking pressure off valuations, she said.

Among individual European stocks, Siemens Energy AG climbed more than 3% after demand for gas turbines and grid equipment boosted profit margins. Glencore plc gained 4% after reporting a jump in profit. Sandoz Group AG surged 7% after meeting sales estimates for the second quarter.

The dollar, the haven of choice during the Middle East conflict, weakened against most of its Group-of-10 peers. A Bloomberg gauge of the currency’s strength fell 0.1%, a third day of losses.

Gold, silver and platinum all rose as the non-interest-bearing precious metals benefit when interest rates are not increased. Bullion climbed 2.2% to about US$4,165 an ounce.

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