The Australian sharemarket finished lower for the week, ending down 2.2%, as fears of a global sell down continues to drive markets. Trading was choppy throughout the week, with a rally on Tuesday after the RBA increased the cash rate by 0.25%, before the cautious tone returned at the end of the week. The Energy (6.4%) sector outperformed, benefitting off crude oil and ongoing supply risks, which helped to offset some of the weakness across other areas of the market, primarily Materials (-7.1%), where gold and critical minerals sold off heavily. Bond yields climbed back to multi year highs, reflecting inflation concerns and heightened global uncertainty.
US sharemarkets also fell, with the S&P 500 and the NASDAQ both weaker, as rising geopolitical risk, high yields and a hawkish Fed tone weighed on sentiment. The Iran conflict and oil implications dominated headlines. The Utilities sector was a main laggard, falling 5.0%, as investors rotated into more cyclical sectors such as Energy (2.8%) and Financials (0.4%) amid the geopolitical tensions. In economic news, the Federal Reserve left interest rates on hold at 3.50%-3.75%, with minimal statement changes, however, signalled limited rate cut expectations.
European sharemarkets fell sharply, following other global markets. The ever evolving energy shock drove volatility across all areas. The price of Brent Crude surged above US$119 per barrel throughout the week, while European natural gas prices also spiked to the highest level since early 2023. Markets are now pricing in multiple rate hikes from the European Central Bank and the Bank of England, also contributing to risk aversion sentiment. In sector performance, 11 from 12 sectors all finished in the red, with Energy (3.2%), the only bright spot.
Stock & sector movements
What caught our eye
When technology transitions take longer than expected
One of the easiest mistakes in investing is to confuse direction with speed.
The auto industry is a good example. Carmakers were not wrong to invest in electric vehicles. The mistake was assuming the shift would be fast, clean and universal. Instead, adoption has been patchy, infrastructure has lagged, consumers have proved more varied, and the industry has moved toward a more practical middle ground. Not a return to the old world, but a longer period where petrol, hybrids and EVs all coexist.
Railroads are another example. Full electrification looked like the superior long-term answer, but on many routes the economics did not justify rebuilding the network. Diesel-electric became the practical compromise. Supersonic flight travel was another. Concorde proved the technology worked, but it never became the mass-market future many imagined because the economics were poor. The dot-com fibre boom was also similar, as the long-term direction was broadly right, but too much capital arrived too early.
This pattern shows up again and again in history. New technology arrives, its benefits are real, and the market quickly jumps to “this will replace everything”. Capital is committed on that assumption. Then reality hits as costs, infrastructure, regulation and customer behaviour matters. The eventual outcome is often not full replacement, but a mixed model that lasts much longer than expected.
These comparisons are useful when thinking about artificial intelligence (AI)
The real question is not whether AI is important, because it clearly is, or whether it will impact white-collar work, it already has. The more useful question is whether people are overestimating the speed of adoption and the smoothness of the path from technical progress to commercial payoff. There’s a lot of experimenting going on right now, as everyone tries to figure out how AI can be used.
Capability can move quickly, but that doesn’t necessarily translate to adoption (see chart below). Rolling out AI across large organisations means changing processes, integrating systems, in addition to dealing with legal and governance issues. Small-to-medium enterprises may be more flexible, but suffer from fewer resources. Workplace culture also plays a role, as some managers may be reluctant to change or appreciate AI, while workers may resist technology that could replace them. It ultimately also means investing in more compute, data and energy, all of which is scarce. These are all real-world constraints which we think will prevent AI from getting ahead of itself.
Our takeaway here is that while big technological shifts are real, they rarely happen in a straight line. The road of progress will be bumpy and uncertain. Winners are not immediately obvious and are often the ones that keep enough flexibility to navigate a slower, messier, more nuanced transition.
Locally, it is a quiet week on the economic data front. The key point will be the monthly Consumer Price Index, which is forecast to rise by 3.9% for the year to February, up 0.1%.
Overseas in the US, initial jobless claims are expected to rise by 215,000, while we will also get a look at Consumer Sentiment.