The summertime blues gripped global markets this week. Falls in US and other tech stocks on Monday sent a cold shiver through investors.
Although a midweek turnaround brought sighs of relief, by yesterday the selling had resumed. Such volatility is a signal that there is certain to be more nerve-jangling periods in the weeks to come.
This is not the moment to run scared. But in this changed climate of rollercoaster share prices and sizzling heatwave temperatures, it makes sense to look for shelters.
The threats could lurk closer to home, with would-be Prime Minister Andy Burnham rumoured to be planning measures that could endanger savings.
Here’s your guide to what’s happening and how to stay safe – but also make the most of opportunities.
Feeling the heat: While falls in US tech stocks early this week have been largely reversed, such volatility is a signal that there will be more nerve-jangling periods in the weeks to come
Alarm over AI spending
In the US there was a sudden switch from Fomo (fear of missing out) to Foab – fear of a bubble.
Confidence may have made a swift comeback with stellar results from Micron, the US maker of memory chips.
But although enthusiasm returned, yesterday’s tumble underlines the growing alarm over the tech sector’s prodigious spending on AI.
This year Amazon, Microsoft, Alphabet (owner of Google) and Meta (owner of Instagram) will splash out $700bn on semiconductors, memory technology and other AI essentials.
SpaceX, Elon Musk’s rocket and satellite giant, is among those planning a programme of colossal expenditure on AI.
SpaceX shares, which made their stock market debut earlier this month, tumbled by 18pc this week, meaning Musk is no longer a trillionaire – for the moment.
The fears over AI spending were exacerbated by a new Bank of America forecast that three US interest rate rises will be required to solve an ‘unambiguously’ worse inflation problem.
Towards the end of the week, the worries lessened, but they could re-emerge.
On this side of the Atlantic, sterling and the gilts market barely moved on the resignation of Sir Keir Starmer. But calm could be short-lived.
If you hold US tech firms, diversify now
The recent AI rally has been lucrative for investors, with semiconductor and memory stocks putting on a dazzling performance.
The names that you are likely to have in your portfolio, or hold through funds, include semiconductor giant Nvidia, Qualcomm, Samsung and the Taiwan Semiconductor Manufacturing Company.
You may also have a slice of the Dutch semiconductor group ASML, Micron and SanDisk. SK Hynix, the South Korean star in this industry, is another popular holding. Its shares are still 300pc higher than at the start of the year.
If you have savings in global funds, you are almost certain to also have exposure to Alphabet, Meta and the other tech corporations who are pouring so much cash into semiconductors and memory.
This week’s rout is not a signal to say goodbye to shares involved in any aspect of the AI arms race.
You can continue to bet on American innovation. But it is an alert to diversify – now.
SpaceX: Shares in Elon Musk’s rocket firm tumbled by 18% this week, after making their Nasdaq debut earlier in June
Health and finance could reap returns
The search is on for defensive sectors in the US stock market. Paul O’Neill, of wealth manager Bentley Reid, says: ‘Healthcare sales and profits are likely to rise significantly in future years as governments address an ageing and obese population.
‘We hold the Xtrackers MSCI USA Health Care fund which invests in names such as Eli Lilly, maker of the Mounjaro weight-loss drug.’
Carolyn Bell, manager of the Stonehage Fleming Global Best Ideas fund – who is also looking for ‘underappreciated quality’ in America – cites Mastercard and S&P Global. Mastercard’s shares are down by 12pc this year.
Shares in S&P Global, the financial analytics corporation, have also crashed, by 19pc.
Matthew Page, co-manager of the Guinness Global Equity Income fund, contends that financial exchanges can serve as a shelter. In periods of ‘elevated volatility’, trading volumes surge, pushing up revenues and profits.
Page’s picks are the CME Group, the global futures exchange and Intercontinental Exchange (ICE) – the New York Stock Exchange group.
The hot stocks
This week’s heatwave in the UK has ignited interest in other US defensive names that are helping us to cope with longer sizzling summers.
Mark Peden, at Aegon Asset Management, selects Linde, the industrial gases business – whose products aim to improve energy efficiency and lessen climate change.
Angeline Ong, of IG.com, lists Carrier Global, the air conditioner group, and Generac Holdings, whose back-up generators step in when heatwaves strain the power grid.
Spread your risk by backing Britain
A lack of clarity about Burnham’s agenda may tempt you to steer clear of the UK market, opting instead for the new National Savings & Investments one-year growth bond, whose rate is a generous 4.69pc.
In the last few days, the appeal of UK plc has been further highlighted, meaning it could be advantageous to stick with bestbuy UK funds, such as Fidelity Special Values, or a low-cost tracker fund – the iShares Core FTSE 100, for instance.
US private equity group Castlelake would like to buy easyJet for £4.9bn or 650p a share.
But the airline’s shareholders think 700p would be a more realistic proposition.
Segro, the real estate investment trust (REIT) and a specialist in AI data centres, also has an American suitor in Prologis, the world’s largest-listed logistics developer.
Readers of this column who followed the advice in March to continue to hold Segro may be delighted by the 925p-a-share offer by Prologis, which is higher than Segro’s share price of 880p.
But Andrew Saunders, of Shore Capital, says that Prologis is still being stingy and that Segro is a ‘buy’ at this level.
You may regret the circumstances that have turned fine businesses into bargains. But you may not regret seizing the opportunity to spread your risk by backing Britain.
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