Weekly Market Review

Markets were pulled in different directions as resilient earnings and softer inflation data competed with escalating geopolitical tensions and renewed questions around AI-related investment.

Market Snapshot

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ARC USD Equity Risk PCI - Dec 03
+5.1%
Year to date
ARC USD Balanced Asset PCI
+3.5%
Year to date
ARC USD Cautious PCI - Dec 03
+2.2%
Year to date
ARC US Dollar Private Client Index performance estimates for Q2 2026. Movements shown are year to date.

Summary

  • Markets were pulled in different directions last week, with encouraging economic data and robust earnings competing against rising geopolitical tensions and concerns around artificial intelligence (AI)-related investments
  • Continued US-Iran hostilities kept oil prices elevated, initially pushing bond yields higher as investors worried about renewed inflation pressures
  • However, weaker-than-expected US inflation figures for June later provided support for Treasuries (US government bonds), with consumer prices recording their first monthly decline in six years
  • While Treasuries mostly ended the week slightly firmer, gilts (UK government bonds) and bunds (German government bonds) lagged, ending the week with higher yields
  • The US's largest banks reported strong results, supported by increased trading activity and a pickup in corporate dealmaking; credit quality also remained stable, suggesting households and businesses remain in relatively good financial health
  • Brent crude oil rose above US$88 per barrel as US-Iran hostilities intensified, gaining almost 16% over the course of the week
  • Shares of companies linked to AI investing came under pressure as investors questioned whether the vast investment will ultimately generate enough profits to justify current valuations; these concerns intensified after a Chinese startup demonstrated competing AI capabilities underlining how quickly rival firms are closing the gap
  • Investors shifted away from AI and semiconductor stocks and towards sectors such as banking, energy and consumer staples
  • UK shares held up relatively well thanks to their greater exposure to financials, energy and consumer staples, while some Asian markets were hurt by their reliance on technology and semiconductor companies
  • Andy Burnham is set to become UK Prime Minister today, with attention this week focusing on his policy agenda and Chancellor appointment, with Shabana Mahmood the new frontrunner.

Market Review

Iran escalation: From ceasefire collapse to infrastructure strikes

The week kicked off against the backdrop of a renewed US-Iran conflict. The ceasefire agreement reached a month earlier had effectively broken down and hostilities that had resumed over the weekend intensified further as the week went on.

By Friday, the US had conducted seven consecutive nights of strikes, expanding to hit road bridges and port infrastructure. Iran responded by attacking American bases in Kuwait and Jordan and then striking Kuwaiti water and power plants later in the week. Shipping traffic through the Strait of Hormuz slumped materially across the week.

Brent crude rose sharply on Friday to around US$88 per barrel, heading for its biggest weekly advance since April.

Inflation relief, but Warsh holds the line

The June CPI and PPI inflation data were the clearest positive macro development of the week. Monthly consumer prices fell for the first time in six years, driven in large part by a drop in gasoline prices, pulling the year-on-year rate to 3.5%. Core PPI rose just 0.2% month-on-month, below the 0.3% consensus.

Despite the encouraging data, Chair of the US Federal Reserve (Fed) Kevin Warsh used his Congressional testimony to reiterate that restoring inflation to the Fed's 2% target remains a priority and that policymakers have “no tolerance for persistently elevated inflation”.

AI theme questioned

The AI investment theme came under pressure last week after technology company IBM warned that customers were redirecting technology budgets towards AI infrastructure. This raised concerns that the benefits of the AI boom may be concentrated among a relatively small group of winners.

At the same time, record-breaking results from AI chipmaker TSMC reinforced that demand for AI remains exceptionally strong, but also highlighted the enormous investment required to support the industry's growth.

Towards the end of the week, Chinese AI start-up Moonshot launched Kimi K3, a powerful new AI model that appeared to narrow the gap with leading US competitors. The announcement added to an AI sell-off that was already underway and reinforced concerns that advanced AI models may be becoming more widely available and less differentiated.

Focus on Number 11

Reports that Shabana Mahmood is currently the leading contender for Chancellor were generally received positively by markets. Investors view her as a right-of-centre and pragmatic figure, although the identity of the Chancellor is likely to matter less than the new government's broader approach to growth, taxation and public spending.

Attention will therefore focus on Andy Burnham's wider economic agenda in the coming weeks.

The Week Ahead

UK political transition

Andy Burnham becomes the UK Prime Minister today, with investors looking for further details on his policy agenda, Cabinet appointments and the direction of the new government's economic strategy.

UK economic data

UK weekly earnings on Tuesday and UK inflation data on Wednesday will be closely watched for evidence of wage and price pressures.

Global activity data

Flash S&P PMIs across the US, UK and Eurozone are due on Friday and will provide a timely read on business activity.

European Central Bank

The European Central Bank concludes its policy meeting on Thursday, with markets focused on the outlook for rates and inflation.

Corporate earnings

Earnings season continues, with Tesla, Intel, Alphabet and American Express among the notable reporters next week.

PWM View

The investment backdrop remains balanced. While geopolitical tensions and higher oil prices have introduced additional uncertainty, the resilience of corporate earnings and improving inflation data continue to support the medium-term outlook. The recent rotation away from AI and semiconductor stocks reflects a normal reassessment of valuations rather than a collapse in the long-term investment case for artificial intelligence.

We continue to believe that well-diversified portfolios remain best positioned for the current environment. Financials, energy and high-quality defensive companies have demonstrated their value during periods of market rotation, while structural themes such as artificial intelligence, digital infrastructure and productivity-enhancing technologies continue to offer attractive long-term growth opportunities.

Although volatility is likely to remain elevated as markets digest geopolitical developments and central bank policy, we believe periods of market weakness should be viewed as opportunities to rebalance portfolios rather than reasons to reduce long-term equity exposure.