Market Musings 010826: Violent theme rotation in market uptrend
Market Musings 010826:
Violent theme rotation in market uptrend
Podcast this week:
Why investors should not ignore commodities (click link to listen)
Report this week:
Investment Strategy Focus August 2026 – Summer Rotation (click link to read)
1. A stronger reflationary environment: a robust global economic rebound developed over June-July even as energy prices rebounded, led by positive industrial momentum. Inflation concerns persist, pushing bond yields higher. Supports value-oriented global stocks, real assets e.g. infrastructure, commodities.
2. Hormuz in a stop-start state: once again, the flow of oil and gas out of the Gulf has been interrupted by re-escalation in military action. The longer the interruption to energy exports, the greater the stagflation risk for the world. Oil refiners continue to benefit from record refining margins on oil products.
3. Copper is strong, will gold follow? These metals have tracked each other higher since 2021 but have diverged in the last 3 months as rising bond yields and a stronger US dollar have weighed on gold. Central banks have turned big gold bullion buyers, while copper is still supported by electrification, tech and defence demand. Maintain Positive views on copper and gold.
4. Summer rotation out of memory: the AI investment theme has corrected sharply since end-May, with big-spending hyperscalers falling 19% since then. Global financials have taken up market leadership, boosted by a strong batch of US Q2 results. We suggest diversifying out of concentrated technology positions into value and US small-cap stock exposure.
5. Buy value-oriented Euro Banks, Poland: European banks have returned 16% this year thanks to strong earnings momentum and shareholder returns. Polish stocks have also demonstrated strong earnings momentum this year, supporting a 20% 2026 return while remaining cheap at 11x forward P/E.
Watch US government bonds: the most important market today
This week, US 10-year and 30-year Treasury bonds sold off following the 29 July news conference of the new Federal Reserve chairman Kevin Warsh. The 30-year US bond yield has now hit over 5.2%, its highest yield since 2007. This move in long-term yields underlines that bond market investors are increasingly worried that the Fed is not focused on bringing down inflation to its stated 2% target.
US 10 and 30-year bond yields rise
The 10 and 30-year bond yields in the US are probably the most important market indicators today. The higher that yields go the greater the pressure potentially on other…
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