Jeremy Richardson from the RBC Global Equity team explores the signals shaping markets right now, from a landmark IPO to easing geopolitical tensions that could open the door to new opportunities in the second half of the year.
Highlights:
SpaceX's $1.75 trillion debut has made headlines, but with less than 5% of its shares listed, the sense of balance between fundamentals and valuation is still ahead – and how that plays out could set the tone for the wave of high-profile AI-driven listings still to come.
Positive momentum behind AI isn’t just re-shaping the economy, but lifting the entire market as well, powering a K-shaped dynamic, where strong AI optimism is lifting overall sentiment, continuing to drive a widening divergence between winners and the rest.
US EPS growth expectations of 20% — and nearly 70% in semiconductors — are giving the market's enthusiasm real fundamental support, while international markets lag at around 9%, highlighting where concentration risk and selective opportunity are both building.
Easing tensions in the Gulf could be the catalyst the bottom half of the K has been waiting for, hopefully in the form of lower energy costs, dissipating inflationary pressure, and improving business conditions may unlock richer opportunities for investors as we move through the second half of the year.
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Jeremy Richardson:
Hello, this is Jeremy Richardson from the RBC Global Equity team here with another update.
Well, this month we've had the IPO of SpaceX, which has created a lot of positive news headlines, coming to market at a $1.75 trillion valuation and being well received by investors in its first few days of being publicly listed, but before we can actually get a true sense of the fundamentals and the valuation of this company, it's probably worth reflecting on the fact that the amount of stock that was listed was comparatively small, less than 5%.
There's going to be a lot more coming to market over the course of the rest of this year, and we may have to wait until that stock does eventually come to market before we can get a truer sense of the balance between fundamentals and valuation for this really high-profile new listing, but what it does indicate is a degree of comfort and optimism within the market that such a large company was so well received and underlines the power we're seeing presently of investment cases which are supported by this artificial intelligence narrative.
Now, we've probably discussed before about the so-called K-shaped economy, but it does seem as though this narrative is actually perpetuating a K-shaped stock market as well, with the positive momentum being seen from artificial intelligence stocks lifting the entire market. When we look at earnings per share, growth expectations for the year ahead, we can see that being reflected in where the fundamental data is coming from. Let's split that down by industry and by geography. Although the market overall, MSCI World is looking for about 16% EPS growth, these are consensus expectations, within the US, that's 20%, and compare that internationally, to about 9%. Then, within the US, some really strong numbers.
For example, semiconductors, nearly 70%. You can see that the market enthusiasm, to an extent, is being supported by those very positive fundamentals. But let's not forget the bottom end of the K, because here we've seen some really interesting news develop over the course of the last month, with the market becoming increasingly confident that the hot war in the Gulf has now come to an end. Hopefully, that will mean that we get a much more free-flowing of energy around the world. If that does happen, then that will relieve pressure on hard-pressed consumers and make business conditions easier for companies too, because the inflationary pressures of high energy costs will dissipate.
That could mean some richer opportunities for investors in that bottom leg of the K, where expectations and fundamentals may begin to improve as we get through to the second half of this calendar year. I hope that's been of interest, and I look forward to catching up with you again soon.
