At the halfway point in the year, the outlook is brighter than it seemed a few months ago. The war in the Middle East isn’t fully settled, but the market has moved on and is more focused now on the upside from AI (artificial intelligence).

The surge in energy prices did give rise to a bump in inflation, and central banks had just started to adjust when oil prices came down again, so we no longer expect much change in interest rates. As for global growth, it turns out that the Trump tax cuts and the massive investment in AI have been more impactful, although these favoured the US more than Europe. Despite the political confusion, the world stock market delivered its strongest quarter since the post-COVID-19 bounce in Q2 2020. The performance this year has been driven by a small number of AI-related stocks, particularly the chip-makers. Importantly though, and unlike the tech boom of the late 1990s, the price growth has been supported by phenomenal earnings growth. In our outlook for the third quarter, we re-assess the resilience of US and European economies post the war in Iran, including the reaction of central banks to the bump in inflation. We explore equity valuations and earnings growth, at the index level and the stock level, in light of the AI boom and the recent IPO of SpaceX. Lastly, in this, our centenary year, we look back at the Irish stock market 100 years ago. Should you have any questions in relation to the content within The Davy Wealth View, and what it means for your portfolio, please contact your Davy adviser.

Donough Kilmurray

Chief Investment Officer