American stocks have seen the best of it, notably in big tech, while most European and Far Eastern markets were lower. The inflation and bond market puzzle is unsettling stocks, US CPI for June came in at 5.4%, other than a brief moment in the summer of 2008, we have not seen these levels for 30 years. Despite this, US ten and 30-year bond yields have fallen since early June as markets have chosen to follow the Federal Reserve’s line that the inflation is transitory. However this resolves (long-dated yields look far too low to us) it is unsettling equity markets and the rally in value/cyclical stocks has run out of steam with a move back towards growth/quality names.

The financials have borne the brunt of the weakness. The banks all suffered: JPMorgan were off 6% and Citigroup was a notable casualty, down 13%; in Europe, Banco Santander, Societe Generale and Deutsche Bank all sank as did HSBC and Standard Chartered. The selling wasn’t confined to the banks, the insurance and life assurance names all weakened too, Aviva by 6%, Axa and Prudential by 5%, possibly the re-insurers (Munich RE, Swiss RE, etc.) have ‘found a level’, they were not so weak. Elsewhere, a number of the telecom stocks weakened, notably Vodafone down by 9%, still suffering from disappointing figures in May and Orange down7% and the motor companies saw weakness in a number of the big names: Ford Motor down 10%, Daimler and Volkswagen by around 6%. Big oil also struggled despite a small gain in the oil price over this period, BP, Chevron, Exxon and Total all fell back.

US technology stocks provided the best performance. Alphabet gained 6% this time to reach a gain of 50% over the year to date. Adobe jumped 19% and released excellent Q2 results and Apple jumped 17% after a poor year until now. Most of the big techs had a good time of it, Amazon and Microsoft both gained around 11%, it appears that the convenience and availability of internet shopping is here to stay. I do wonder if there comes a time quite soon when (some of) these giant technology companies fall prey to anti-trust concerns in the manner of behemoths in the past. All quite a contrast to their Far Eastern counterparts as the Chinese authorities continue to flex their regulatory muscles, Tencent Holdings slipped a further 6% this time. Japan’s Softbank has also had a difficult period, down by around 7% after disappointing figures and reflecting their myriad investments in early-stage technology companies. The semiconductor stocks tended to drift after their strong first quarter, Intel and Samsung Electronics slipped by around 3%.

The Swiss market had another good period as the rotation to quality benefitted Roche Holding and Nestlé, their two biggest companies, more than compensating for weakness amongst their banks and insurance companies. Pharmaceuticals provided a number of bright spots. Beside Roche, Novo Nordisk, the Danish diabetes specialist, was notable with a gain of more than 10%. Beside Amazon, the feature in the consumer discretionary area was Nike whose stock surged by more than 20% after projecting that revenue this year will surpass $50 billion for the first time (that is a lot of trainers!), benefitting from rebounding growth in North America.