Weekly Market Update: oil, AI and everything in between

The latest economic news and market highlights from the UK and abroad.

This week's headlines: 

• BoE holds rates – The Bank of England (BoE) decided to hold interest rates at 3.75% on Thursday, but indicated they would act forcefully if oil prices continue to rise. 
  
  
• UK oil stocks grow – BP’s share price rose over the week after it announced its Q1 profit doubled year-on-year. Rival Shell’s shares also rose, with both companies making up a large part of the FTSE 100. High oil prices are clearly benefitting oil companies. 
  
  
• UAE leaves OPEC – The United Arab Emirates (UAE) has confirmed the decision to leave OPEC, the cartel that controls oil supply, in a bid to set its own production levels. While this won’t have an immediate effect on oil prices due to the disruption in the Strait of Hormuz, it could have a long-lasting impact in years to come.
  
  
• The King’s speech – Focus this week was on the King’s visit to the USA, and the UK’s “special relationship” highlighted in the banquet speech. While not directly impacting markets, this visit and how it affects Trump’s view on the UK could impact the economic relations between both countries, especially around future tariffs.
  
  
• Musk v Altman – Elon Musk donated $38mn to OpenAI before it became a for-profit company.  He walked out in 2018 but is now suing for $150bn in damages, claiming he was misled about the donation by OpenAI’s Sam Altman. A verdict is expected at the end of May.

Markets continue to be driven by the developments in the Middle East, with the focus very much still on oil, which is continuing to fuel inflation. The longer this goes on, the more likely it is to have long-lasting economic impacts.

AI remains firmly in focus and can’t be ignored. The biggest companies in the S&P 500 are all heavily involved, with AI infrastructure concentrated among a small number of mega-cap firms.

We should all keep future growth, and inflation in mind when making investment decisions and continue to stress the importance of well-diversified portfolios.

However, this week has shown small signs of hope. The BoE hasn’t raised interest rates despite markets pricing in a move – although that doesn’t rule out future rises.

And Trump, who’s called out PM Keir Starmer on many occasions this year, seems to have been placated by the King’s visit. Perhaps reducing the chance of future tariffs? We’ve already heard they’re removing them on whisky. But like we can’t predict markets, no one can really predict Trump.

Chart of the week - top 10 S&P 500 stocks

It’s worth hammering the point that a large portion of the S&P 500, (often accessed through index funds to gain exposure to the US), is now heavily concentrated towards a small number of companies – and increasingly so in the last five years.

A classic, but misguided, take on investing is to just invest in a single tracker, global or S&P 500, but highlighted in the chart, that overlooks concentration risk. And that risk may get worse. Big IPOs such as OpenAI, Anthropic and SpaceX are rumoured to have potentially big valuations that could easily place them within the top 10.

With nearly all of the current top 10 companies being technology companies, that’s a lot to have exposed to tech - and within that AI. This isn’t a critique of AI, but as above, a reminder that diversification across industries, countries and assets still matters.

UK – 10-year gilt yields have risen to above 5% for the first time since 2008. This comes on the back of the fears around borrowing costs globally.

US – four of the “Magnificent 7” (seven stocks that combined make up more than 30% of the S&P 500 – Alphabet, Amazon, Meta and Microsoft) posted results with a lot of focus on their AI spending.  Alphabet, Amazon and Microsoft seemed to get a boost from their cloud computing businesses while Meta failed to impress Wall Street. Overall, the S&P 500 and NASDAQ have remained flat.

Oil – continued its rise this week, with Brent Crude increasing to more than $126 a barrel, the highest for 4 years after reports that the US was preparing for prolonged action in Iran.

Gold – Gold has shrunk this week by -2.35%. Traditionally seen as a safe haven, Gold has experienced some choppiness over the last few months. 

Japan – the Japanese government has raised the prospect of repeated intervention in currency markets to defend its currency with the yen rising 3% against the dollar on Thursday. This could have longer-term impacts as many traders have historically used the yen’s low interest rates to borrow money and buy foreign assets. An unwinding of this could create selling pressure in those markets.

If you’d like to explore these themes in more depth, our investment team has set out their latest thinking in our article, “Uncertainty in markets, certainty in what we’re doing”, which you can read here: Uncertainty in markets, certainty in what we’re doing. 

Catch the recording of our Q1 Let’s Talk Markets webinar, when the team discussed recent market developments, key drivers behind portfolio performance, and the outlook for the months ahead. 

This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.