The Australian sharemarket finished the week lower, with the ASX 200 falling -1.2% as sentiment weakened late in the week amid geopolitical tensions and persistent inflation concerns. Earlier in the week, softer-than-expected GDP data supported markets and lifted expectations the RBA may pause further rate hikes. The Information Technology sector (7.7%) was the standout, driven by a rebound in global software stocks and AI-related optimism. The Energy sector (1.5%) also saw strength earlier in the week on higher oil prices, before easing later in the period. In contrast, the Materials sector (-2.4%) lagged on falling iron ore prices, while Financials sector (-2.1%) remained under pressure.
US sharemarkets declined over the week, with the S&P 500 falling -2.5% as investor sentiment weakened and a nine-week winning streak came to an end. The pullback was driven by a rotation out of mega-cap technology and AI-related names, alongside stronger-than-expected labour market data, reinforcing expectations that interest rates may remain higher for longer. The Information Technology sector (-5.4%) and Communication Services sector (-3.9%) led declines, with semiconductor and software names particularly weak. In contrast, Energy (2.5%), Health Care (2.3%) and Financials names (1.4%) outperformed, supported by rising oil prices and a shift toward more defensive and value-oriented areas of the market.
European markets declined over the week, with the STOXX Europe 600 falling -0.5% as geopolitical tensions and rising energy prices weighed on sentiment. Escalating Middle East conflict pushed oil higher and increased inflation concerns, reinforcing expectations for further ECB rate hikes. Despite this backdrop, the Technology sector (2.2%) outperformed, supported by continued AI-driven investment and strength in semiconductor-related names. The Energy sector (1.3%) also advanced on higher crude prices, while the Retail sector (1.8%) gained on improved consumer data. In contrast, the Automobile & Parts sector (-3.9%) and Basic Resources sector (-1.9%) underperformed, reflecting weaker cyclical sentiment and softer commodity prices.
Stock & sector movements
What caught our eye
Most of the Market Stood Still
The headlines last month were mostly about sharemarket strength. The US market sits near its highs, and the easy read is that shares have simply had a good run. The more useful read is what has been happening under the hood, because most of the market has barely moved.
Measured from late February, just before the conflict with Iran unsettled markets, the S&P 500 is up around 10%. Take out the companies seen as powering artificial intelligence (AI), chiefly the chipmakers and hyperscalers, and the index is essentially flat. Almost the entire gain has come from one corner of the market. Morningstar says of the ten largest contributors to the US market since the end of March, nine were tied to AI, and together they produced two thirds of the market return. Technology rose over 30% across that stretch, while more value-based names managed barely 3%.
We think AI strength rests on real profits rather than hot air, which sets it apart from most past manias. Some don’t agree, but those voices have proven wrong so far and seem to be falling in number. Recall that Michael Burry, the famous bear who got the GFC call right, closed down his fund late last year. In a letter to clients he stated, “My estimation of value in securities is not now, and has not been for some time, in sync with markets”. Not to say that those voices calling AI a bubble will always be wrong, at some point they may prove right, but there’s a cost to not participate and it’s been high over the last few years.
If we look at real corporate earnings, the S&P 500 produced annual earnings growth of a staggering 28.6% in 1Q 2026. Korea alone is forecast to grow earnings by 300% this year on a genuine multi-year shortage of memory chips, the strongest profit jump in any Asian market in a generation.
That said, some of the enthusiasm has certainly tipped into froth. For example, Allbirds, a former US footwear company, reinvented itself as a data centre business back in April. It’s share price surged 582% on the announcement, before falling back to earth over the subsequent weeks. An exaggerated example perhaps, but it proves the point that investors need to maintain a level head when the market is being thematically driven.
All in all, if you strip away AI then 2026 so far looks like the ordinary, slightly awkward year a Middle East shock would normally produce. It explains why sharemarkets have done well despite the conflict with Iran. For clients, it also shows where our careful stock selection and portfolio management earns its keep. A market leaning this heavily on one or two themes rewards knowing precisely what you own, what you are paying for it and how to manage the risk.
The Cutcher & Neale International Shares Model has generated a gross annualised return of 24.5% in the three years to the end of May 2026. This compares to the MSCI World ex Australia Index, which returned 17.8% over the same period.
Locally, focus will be on inflation expectations data, including the Melbourne Institute survey, alongside consumer and business confidence indicators, providing further insight into inflation trends and economic conditions.
Overseas, attention will centre on US inflation data, including CPI and PPI, alongside jobless claims, which will be closely watched for signals on the Federal Reserve’s next interest rate move.