Signals beneath a Choppy Market: When markets got their truce, but not the calm

Two events defined June 2026. The much-awaited sixty-day US-Iran ceasefire seemed to remove a geopolitical overhang that had weighed on risk assets for months. Then the Federal Reserve, meeting for the first time under its new chair, struck a hawkish tone, and rate hike expectations snapped higher instead of fading. The promise of peace lowered one source of risk while the tone of policy raised another. To understand the implications, we had to follow the money flows and read the signals underneath the noise.

1. The rotation out of commodities. Higher rate expectations lifted the dollar, and a firm dollar is rarely kind to commodities. Flows moved out of commodities, with both March and June recording net outflows. Gold has fallen more than 20% from the beginning of the conflict, partly as institutions sold their most liquid holdings to raise cash. Global gold ETF holdings eased to 4,121 tonnes by the end of May, just below February's peak. But a rotation is not a reversal. Central bank accumulation and the slow drift toward de-dollarization continue to underpin gold's longer-term role. The tactical disruption and the strategic case can, and do, coexist.

2. The five-piece inflation puzzle. No single force is driving US inflation, which sat at 3.0% in May. The Fed's hawkish opener matters well beyond America: more than a fifth of G20 nations are now in a hiking cycle, compared to almost none at the start of the year. The weather matters too, with US coarse grain output projected down about 6% and wheat down 22%, feeding through to meat prices at a lag of six to eighteen months. Tariffs add uncertainty, and the US-Iran calm stays fragile even as cheaper Brent crude helps the outlook. The most intriguing piece is AI, which may cut both ways. Data-centre demand is pulling hard on copper, power and chips today, with hyperscaler capital spending set to climb from roughly USD 410 billion in 2025 toward USD 1 trillion by 2027. Yet the IMF estimates the eventual productivity dividend could add half a percentage point to one and a half points to total factor productivity by 2035, a disinflationary force over the longer run.

3. Two mirrors across emerging markets. Korea and Taiwan, plugged directly into US hyperscaler demand through semiconductors and high-bandwidth memory, drew the largest inflows of the group even as emerging markets as a whole saw net outflows of roughly USD 69 billion. On the other hand, China and Brazil weighed on EM performance, as China’s continued AI crackdown, deep property-consumption slowdown triggered USD 190 billion of outflows, while Brazil's high rates, inflation, and fiscal pressures kept growth and earnings momentum subdued.

4. What keeps US markets optimistic. Earnings are doing the heavy lifting that softer macro data cannot, with S&P 500 growth for the second quarter projected near 22% year on year, led by Energy and Information Technology. The caution is that valuations already sit above their historical averages, and 2027 earnings growth is expected to slow sharply, which leaves the market more exposed to any shock. For now, demand absorbs supply, as buybacks, households and institutions soak up a record but still relatively modest wave of IPOs, though a growing share of that demand is being financed with leverage, as margin debt has pushed to fresh records above USD 1.2 trillion. Leverage amplifies the rebounds, and it magnifies the falls.

5. AI’s engine. Memory supply looks likely to stay tight for longer than many expect. AI demand pushes makers to prioritize high-bandwidth memory, tightening conventional supply and lifting prices across the board. New fabs take two to three years, but the power, grid and water they depend on can take five to ten years or more. The bottleneck is not the factory. It is everything around it.

How this shapes a portfolio. A world of sticky inflation, a firm but structurally challenged dollar, resilient earnings shadowed by full valuations, and a genuine AI-led growth engine argues for a globally diversified, multi-asset stance: equities-led across developed and emerging markets, a commodities sleeve anchored by gold, a select allocation to data-centre REITs, and a deliberate underweight to long-duration bonds.

The full reasoning, and every chart behind these themes, sits in the July edition of The Investing Pantheon, available to download below.

Read the July Pantheon: Here