Weekly Market Overview

While a week ago it still seemed that the bulls would gain the upper hand in a cautiously positioned market, the bears regained the upper hand last week. The reasons: inflation fears, driven by oil prices rising above 100 again and interest rates climbing to 4.85%, above the January 2025 peak.

One of the catalysts for the rise in interest rates was a smaller-than-expected bond buyback by Scott Bessent: 6 billion, compared to an expected 8–10 billion. Nevertheless, the bond markets ended the week on a positive note: the U.S. Treasury managed to auction 39 billion in 10-year notes, achieving the highest subscription rate since 2019, with foreign investors purchasing 79% of the total. It therefore appears that while investors continue to pressure Bessent, they are also confident that his red line below 5% will hold. And that will be necessary, because a change in spending policy is certainly not on the horizon: in order to avoid an electoral rout in the midterm elections, Trump promised checks of $5,000 to all U.S. residents.

The trajectory of the oil price needs little explanation. Today, an average of 7 ships pass through the Strait of Hormuz, compared to 130 before the war. Trump’s promise—after having declared victory earlier this year—to end the conflict after the elections highlights the unpredictability of the geopolitical situation. Elsewhere in the commodities market, copper rose to a record high. Copper is essential for semiconductors and electrification, and there has been insufficient investment in mines over the past few decades.

Stocks are trading just a few percent below their record highs, but beneath the surface, things are once again more turbulent. The equally weighted S&P 500 index is trading at its lowest level since late July, illustrating that, following a broadening of the rally, concentration in market leadership is once again increasing. That leadership lies once again with semiconductors, as investors are once again drawn to their low valuations, visibility regarding future corporate earnings, and long-term “imbalances” between ever-rising demand and supply that is growing at a slower pace. Software was once again on the sidelines. The launch of OpenAI’s Astra, an astonishingly powerful LLM, and Meta’s Muse, an AI agent/assistant, has reignited the debate over what the competitive moat of SaaS is and who controls the user interface.

A cybersecurity incident, on the one hand, and LLMs reaching new milestones in intelligence, on the other, shifted the debate from which companies stand to gain or lose in the short term to more existential questions. At Frontier Lab Anthropic, two departing employees went public with warnings about AI safety. One of them estimates the probability of a doomsday scenario in which humanity does not survive at 10 percent. The American writer F. Scott Fitzgerald once stated that the test of first-class intelligence is the ability to hold two opposing ideas in mind at the same time and still be able to function. However, a financial market in which a war is raging that had previously been declared won, where the head of the U.S. Treasury claims to be the market, and where the global economy stands or falls on a technology whose success carries a 10% chance of an “extinction event,” may be testing investors’ intelligence a little too much.