Weekly Market Recap

Equity markets

Last week, the MSCI All Country World Index (MSCI ACWI) lost -1.6% (10.4% YTD).
The S&P 500 Index finished the week -1.5% lower (9.6% YTD) in a reversal of the prior week’s large-cap tech outperformance. Within the S&P 500, information technology and communication services posted the steepest losses, weighed down by large-cap tech and artificial intelligence (AI)-linked shares. The energy sector advanced alongside oil prices amid escalating tensions between the US and Iran.

Earnings season began in earnest on Tuesday, with several major banks, including JPMorgan Chase and Goldman Sachs, reporting results that largely topped consensus estimates. However, selling in semiconductor, memory, and AI infrastructure shares weighed on the broader market despite encouraging results from Taiwan Semiconductor Manufacturing and chip-machine supplier ASML.

Large-cap growth stocks strongly underperformed their value counterparts, while small caps outperformed large caps. The Russell 1000 Growth Index returned -3.6% (1.3% YTD), the Russell Value Index 0.5% (18.8% YTD), and the Russell 2000 Index -0.5% (20.2% YTD). The technology-heavy Nasdaq Composite dropped -2.9% (10.2% YTD).

In Europe, the MSCI Europe ex-UK Index ended a volatile week down 0.4% (10.1% YTD) as weakness in US and Asian tech stocks spread to Europe on Friday. Investors digested quarterly corporate earnings reports, signs of re-escalating tensions in the Middle East, and higher oil prices. Most major stock indices retreated. Germany’s DAX Index lost -0.9% (1.4% YTD), France’s CAC 40 Index was flat (5.0% YTD), and Italy’s FTSE MIB Index gave back -1.4% (18.7% YTD). Switzerland’s SMI gained 0.8% (11.3% YTD). The euro was little changed against the US dollar, closing the week at USD 1.14 for EUR.

The FTSE 100 Index in the UK, which has relatively little exposure to technology names, rose 1.0% (8.7% YTD), while the FTSE 250 Index added 1.0% (7.1% YTD). The British pound strengthened against the US dollar, closing at USD 1.35 for GBP, up from 1.34.

Japan’s stock markets suffered sizable losses over the week. The TOPIX Index dropped -2.9% (16.3% YTD), and the TOPIX Small Index fell -2.3% (13.4% YTD). The declines were driven largely by bearish sentiment toward technology stocks and mounting concerns about whether companies within the AI complex can sustain their lofty valuations. Escalating conflict in the Middle East and surging oil prices created an unfavourable geopolitical backdrop, further dampening investors’ risk appetite. The sharp rise in oil prices pressured the yen, which weakened to JPY 162.4 against the US dollar, from JPY 161.7 at the end of the previous week, amid worries about the negative impact on Japan’s terms of trade, given the country’s high dependence on Middle Eastern oil imports.

In Australia, the S&P/ASX 200 Index edged down -0.1% (3.1% YTD) due to the re-escalation of the US-Iran conflict and continued sell-off in AI hardware stocks. Australian government bond yields rose amid higher oil prices, while the curve remained largely unchanged. The Australian dollar strengthened against the US dollar by 0.5%.

In Canada, the S&P/TSX Composite slid -0.1% (12.6% YTD).

Emerging markets and other markets

The MSCI Emerging Markets Index lost -4.1% (16.9% YTD). The Indian market contributed positively, while the Chinese, Taiwanese, South Korean and Brazilian markets contributed negatively.

China equities diverged during a volatile week, with a renewed sell-off in AI, memory-chip, and other semiconductor shares driving steep mainland losses, while the broader Hong Kong market remained positive despite sharp declines in technology shares on Friday. The onshore CSI 300 Index, the main onshore benchmark, dropped -5.1% (-0.8% YTD), while the Shanghai Composite Index fell -5.6% (-3.9% YTD). Hong Kong's benchmark Hang Seng Index gained 1.6% (-2.3% YTD). The MSCI China Index, which primarily comprises offshore-listed stocks, lost -0.5% (-10.9% YTD).

A sharp Tuesday rebound, supported by stronger-than-expected trade data, was more than reversed by Friday’s sell-off amid concerns about elevated AI valuations and intensifying competition among Chinese large language model developers; mainland losses narrowed late as trading activity increased in several large index ETFs often favoured by state-backed investors.

Hong Kong nevertheless outperformed over the week, supported by mainland buying through the Stock Connect programme and gains among large internet platforms, automakers, health care companies, and selected property stocks, although mainland investors became net sellers on Friday as technology shares fell sharply.

In South Korea, South Korean equities experienced significant volatility over the week, with the KOSPI ending sharply lower as a correction in AI- and semiconductor-related stocks weighed on market sentiment. Memory-chip leaders Samsung Electronics and SK Hynix faced heavy selling pressure amid valuation concerns, positioning unwinds, and broader weakness across global semiconductor equities, although the market staged a brief midweek rebound as investors rotated back into AI beneficiaries. Trading conditions were further exacerbated by leveraged ETF activity, prompting regulators to announce temporary restrictions on new single-stock leveraged ETFs to curb volatility.

On the macroeconomic front, the Bank of Korea raised its policy rate by 25bps to 2.75% and maintained a hawkish tone, citing resilient economic activity, semiconductor-driven growth, persistent inflationary pressures, and rising household debt. Policymakers indicated that growth is likely to exceed previous forecasts, while economic data remained broadly constructive, including a decline in unemployment and an upgraded government growth outlook. The policy tightening supported the Korean won and contributed to modestly higher local bond yields, though monetary developments were largely overshadowed by equity market volatility and continued focus on the technology sector.

In Saudi Arabia, Middle Eastern bond spreads widened as investors demanded higher compensation for geopolitical, fiscal, and supply-chain risks. Saudi markets were particularly weak as renewed US-Iran hostilities, reduced traffic through the Strait of Hormuz, and the threat of disruption in the Red Sea increased the regional risk premium. Although oil prices rose sharply as attacks on energy and shipping infrastructure intensified, the benefit of higher crude prices was outweighed by concerns about export reliability, tanker availability, and broader economic disruption. Saudi oil loadings from Gulf terminals also slowed, though the kingdom’s East-West Pipeline and Red Sea export capacity provided greater flexibility than many regional peers.

Risk sentiment deteriorated further after Houthi missile and drone attacks on Saudi Arabia raised the possibility that the kingdom could be drawn more directly into the conflict. The escalation also increased the risk of wider disruption to Red Sea shipping and heightened concerns about Saudi Arabia’s regional security commitments, including its defence relationship with Pakistan.

Fixed income markets

Last week, the Bloomberg Global Aggregate Index (hedged to USD) was little changed (0.6% YTD), the Bloomberg Global High Yield Index (hedged to USD) slid -0.1% (2.8% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index lost -0.2% (1.1% YTD).

US Treasuries generated positive returns, with yields decreasing across most maturities as the week’s cooler-than-expected inflation reports and subsequent repricing of rate expectations largely offset Monday’s oil- and Fed-driven sell-off. Over the week, the 10-year Treasury yield decreased by -1bp to 4.55% from 4.56% (up 38bps YTD). The 2-year Treasury yield declined by -3bps, ending the week at 4.18% from 4.21% (up 71bps YTD).

US investment-grade corporate bonds also advanced but underperformed Treasuries. High yield bonds were resilient but uneven throughout the week, facing pressure from geopolitical tensions and higher oil prices before ultimately modestly declining amid support from soft inflation data and strong bank earnings.

Over the week, the 10-year German Bund yield increased by 6bp, ending at 3.12% from 3.06% (up 27bps YTD). The 10-year UK gilt yield rose by 8bps, ending the week at 4.95% from 4.87% (up 47bps YTD).