What's that, Ronan? - Global market update

There is a funny thing about the music business – a song can be recorded and performed by a host of different artists over the years and yet if you ask a group of people who sang it, theywill tend to focus around one performer (usually the most recent) and believe that that person was the only one who was the originator, even though others may have had a hit with it in the past. The title of one such song, that actually topped the charts four times in 1988, 1995, 1996 and 1999, is starting to feature very highly in investors’ minds as they get to grips with Kevin Warsh, the new sheriff at the US Federal Reserve (Fed). While most remember it as a Ronan Keating song – particularly as it appeared on the soundtrack to the movie Notting Hill – markets are coming to terms with the idea that the Fed now believes that you say it best, “When You Say Nothing At All!”.

For many years now, one of the key tenets of the relationship between markets and the Fed is that the Fed helps investorswith their forecasting of interest rates and other economic variables by providing either forward guidance (the dot plot for interest rates) or the summary of economic projections (SEP). This looks like it is set to change under Warsh as his comments on forward guidance and his own refusal to submit a dot leaves a chairman-sized hole in the committee projections. Moreover, the announced task force on communications offers at least some threat that the SEP may not survive for much longer in its current guise either.

Whether the Fed should leave rates on hold is kind of beside the point – it’s what they will do that matters – and for markets trying to price that in an efficient manner, having your tip sheet taken from you will likely cause you a problem and potentially create more ‘surprises’ in the future. The last few days have seen an odd combination in the markets of falling inflation expectations and rising interest rate forecasts, and while some might suggest that this reflects increasing confidence in the idea that the Fed ‘will do the right thing’, it also could be seen as a tacit acceptance by the market that interest rates need to stay higher for longer so as to stamp out any chance that inflation creeps into other, more mainstream areas of theeconomy.

Last week also saw us close out the first half of 2026 – and what a six months it has been. The days around quarter end can throw up some unusual price moves as investors try to tape-paint closing values, particularly after a tumultuous few months like we have seen. The market cap weighted S&P jumped 1.17% on Monday and another 0.79% on Tuesday, but the equal-weighted index barely moved. So if you were looking at individual names in the market, you might be wondering where the rally came from. In data going back to early 1997, this is the first time that the SPX has rallied at least 0.50% with negative breadth on consecutive days.

These days everyone wants to talk about semiconductors, and yet even in this sector things seemed unusual – the so called ‘SOX’ index jumped nearly 4% despite a fairly indifferent contribution from its current gang leader, Micron – it is a bit of a head-scratcher!

The previous week we saw the sector rally as investors got affirmation from Micron’s quarterly results that we are still in the ‘to infinity and beyond’ stage – but the follow-through has been less than convincing, perhaps because some of the negative externalities of the scramble for semiconductors are now becoming more apparent. What has been lost in the recent AI (artificial intelligence) fuelled love affair with semiconductors is that there are plenty of other industries that use semiconductors, and they are now being forced to pay AI-level prices despite their customers having decidedly more muted demand curves in their end markets.

Also, there is further cause for doubt to creep in. The last few days have seen the news that SK Hynix is planning a chunky capital raise in the US, and that both it and Samsung Electronics are looking to spend significant sums on capitalexpenditure (capex) to ramp up production capacity. While some will argue that this seems sensible on the face of things, given the rampant demand at the moment, it is also a reminder of why memory is such a cyclical industry – the level of capacity that is appropriate for the peak is excessive once demand rolls over. We saw this in the dot-com bubble and, at some point, we’ll see it in AI.

It may still be early in this cycle, and it is probably right to be a little sceptical that this step up in capex marks the ding-dong high in the chip trade, but it certainly raises the risks around the secular theme for the intermediate to longer term. Chip stocks are priced to throw off mountains of cash in the coming years, but if capex spending puts a big dent in that projection, then we could end up with a bag of soggy chips!!