Market snapshot: Elon-gated gains

For US markets, it was the first opportunity to react to the weekend truce and they responded accordingly, with the Dow Jones flying to a new record closing high.

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The S&P 500 and Nasdaq are also within touching distance of their recent closing records, largely driven by resurgent euphoria around all things tech, most strikingly portrayed by the Space Exploration Technologies Corp Class A (NASDAQ:SPCX) IPO which has captured the imagination of investors. The share price added a further 20% following the success of Friday’s flotation, leaving it 43% higher than the issue price in just two trading days. IPO stocks traditionally take a number of days for the dust to settle, but the early indications are clearly that this is a stock which investors are adding to their growth portfolios, as opposed to stagging the issue for a quick profit.

The optimism washed across sectors with particular reference to the AI trade. Micron Technology Inc (NASDAQ:MU) added almost 11% and Advanced Micro Devices Inc (NASDAQ:AMD) 7%, while the majority of gains across the tech-based indices was driven by the ultimate heavyweight that is NVIDIA Corp (NASDAQ:NVDA), where a share price advance of 3.5% contributed to the 1,040% spike which the stock has seen over the last five years.

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The most obvious indicator of the effects of the conflict has been the oil price, which has whipsawed over recent months given its inflationary influence. The price drifted further as news emerged that Friday’s official signing of the truce had been preceded by an electronic version, even though the time lag of restoring pre-war levels of supply remain the subject of debate. The price is now 15% above its level compared to the beginning of the conflict and 36% higher in the year to date, but 43% lower than the spike recorded in late March, which itself did not quite rise to the heights seen following the outbreak of the Russia Ukraine war in 2022. Oil analysts have noted that the 2022 energy shock resulted in trade pressures which lasted long after the peak in the price of the underlying commodities.

Even so, the momentum has been restored for the time being at least. The fresh record takes the Dow Jones to a gain of 7.5% in the year to date, while the S&P 500 and Nasdaq have added 10.4% and 14.8% respectively amid the more general turmoil.

In Asia overnight, Japan was centre stage on two fronts. The Nikkei 225 briefly topped the 70,000 level for the first time, bringing its gain in the year to date to around 34% as its own exposure to tech stocks has reaped rich rewards. Separately, the Bank of Japan raised its key interest rate to 1%, the highest for three decades, in response to inflationary pressures which were typified by a 6% spike in wholesale prices in May. Even so, the current inflation rate of 1.4% is below the BOJ’s 2% target although further hikes have not been ruled out.

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UK markets have had a more muted response to the developments of the last couple of days, with an initial spike being erased by the end of the session yesterday. The disproportionate weight of share price declines in BP (LSE:BP.) and Shell (LSE:SHEL) certainly had an impact, but the premier index recovered some poise at the open with a broad mark up across sectors which incorporated the likes of Scottish Mortgage Ord (LSE:SMT) given its traditional exposure to technology, and the defence companies where there has been proof if it were needed of the ongoing reliance on defence spending. BAE Systems (LSE:BA.), Rolls-Royce Holdings (LSE:RR.) and Babcock International Group (LSE:BAB) each added more than 2% as investors reassessed their options.

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As a result, the FTSE 100 is now ahead by 5.3% in the year to date although some 4.4% away from the record closing high recorded in February. Nonetheless, with an average dividend yield of 3% across the index adding to total returns, the FTSE 100 is primed at any given moment to become a refuge for investors should volatility test the patience of investors elsewhere to excess.”