Market Commentary

June 2026 marked a significant shift in market sentiment after global equities entered the month near record highs. Investors became increasingly focused on persistent inflation pressures, uncertainty surrounding the Federal Reserve’s policy direction, concerns regarding the sustainability of elevated artificial intelligence-related valuations, and renewed volatility in Middle East geopolitical developments.

While underlying economic growth remained resilient across many major economies, particularly in the United States, markets demonstrated greater sensitivity to inflation and policy risks than in previous months. The evolving environment highlights the importance of maintaining a balanced approach between capturing long-term growth opportunities and managing downside risks associated with a more uncertain macroeconomic backdrop.

International markets delivered mixed returns during June. Technology shares, which had led market performance for much of the year, came under pressure as investors reassessed earnings expectations and capital expenditure requirements associated with artificial intelligence infrastructure. At the same time, energy price volatility continued to influence inflation expectations and central bank policy discussions globally.

USA

US markets experienced increased volatility during June as investors rotated away from some technology and growth-orientated shares. The Nasdaq declined by 2.8%, while the S&P 500 fell by 1.1%. In contrast, the Dow Jones Industrial Average outperformed, gaining 2.5%.

Economic data presented a mixed picture. Headline inflation increased to 4.2% year-on-year in May from 3.8% previously, while core inflation rose to 2.9%. Higher energy prices resulting from Middle East supply concerns remained a key contributor to inflationary pressures. The Federal Reserve’s preferred inflation measure, core Personal Consumption Expenditures (PCE), also increased to 3.4%.

Despite the inflation backdrop, economic activity remained resilient, with first-quarter GDP growth revised to an annualised 2.1%. At its June meeting, the Federal Reserve left interest rates unchanged at 3.50%–3.75%, while emphasising a data-dependent approach and signalling continued vigilance regarding inflation risks.

Europe

European markets delivered mixed results but generally proved more resilient than their US counterparts due to lower exposure to the technology sector. Germany’s DAX declined by 0.4%, while France’s CAC 40 advanced by 2.7%.

Eurozone inflation increased to 3.2%, driven largely by rising energy costs. Europe’s continued dependence on imported energy leaves the region particularly exposed to fluctuations in global energy markets.

The European Central Bank raised interest rates by a further 25 basis points to 2.25%, despite subdued economic activity. Policymakers continue to face the difficult task of balancing inflation control against the need to support economic growth, while adopting an increasingly data-dependent policy stance.

UK

The UK market experienced another politically and economically challenging month, with the FTSE posting a modest gain of 0.8%. Inflation remained unchanged at 2.8% year-on-year as lower food price pressures offset higher transport costs.

Political uncertainty intensified during the month following Prime Minister Kier Starmer’s decision to stand down as leader of the Labour Party. However, while political developments may alter the narrative, the UK continues to face broader structural challenges including weak productivity growth, subdued business investment and strained public finances.

These constraints continue to limit economic flexibility and contribute to a difficult operating environment for policymakers.

China

Chinese markets delivered mixed results during June. The Hang Seng declined sharply by 9.1%, reflecting the broader global reassessment of technology-related valuations, while the Shanghai Composite Index rose marginally by 0.6%.

Economic data showed modest improvement. Manufacturing activity strengthened, with the Purchasing Managers’ Index rising to 50.3, while non-manufacturing activity improved marginally to 50.2. Both readings remained above the level indicating economic expansion.

The People’s Bank of China left benchmark lending rates unchanged, signalling continued preference for targeted fiscal support and industrial policy interventions rather than broad-based monetary stimulus. Policymakers continue to view weakness in household spending and the property sector as structural challenges requiring longer-term solutions.

Japan

Japan once again stood out among major developed markets, with the Nikkei advancing by 5.6% during June. Strong demand for technology-related companies, continuing corporate governance reforms and supportive fiscal policies all contributed to positive market performance.

Inflation increased slightly to 1.5%, prompting the Bank of Japan to raise interest rates to 1.0%, the highest level since the mid-1990s. Despite this gradual normalisation of monetary policy, economic conditions remain supportive relative to many other developed markets.

Japan continues to benefit from structural reforms and improving corporate profitability, although policymakers remain mindful of the need to balance inflation management with economic growth objectives.

South Africa

The local market weakened during June, with the FTSE/JSE All Share Index declining by 3.8%. Resource stocks were the primary drag on performance as geopolitical risk premiums unwound and commodity prices softened. The Resource 10 Index declined by 10.6% during the month.

In contrast, domestic-facing sectors performed well. Listed property gained 3.3%, financial shares advanced 2.3%, and industrial companies delivered positive returns of 1.9%.

South African inflation accelerated further, rising to 4.5% year-on-year in May from 4.0% in April, while core inflation increased to 3.8%. The rise primarily reflected the impact of higher global energy prices filtering through to domestic fuel and transport costs.

Encouragingly, economic growth surprised on the upside. First-quarter GDP expanded by 0.5% quarter-on-quarter, lifting annual growth to 1.9% and suggesting stronger underlying economic momentum than previously anticipated.

Key Investment Risks Emerging in June 2026

1. Persistent Inflation Risk - Inflation accelerated again across the US, Europe and South Africa, largely driven by higher energy prices. This raises the possibility that central banks may need to keep interest rates elevated for longer than markets anticipated. Higher-for-longer rates remain a risk for both equity valuations and bond returns.
2. AI Valuation Risk - One of the most important developments during June was the market rotation away from certain technology shares amid concerns over AI-related capital expenditure and stretched valuations. The sharp declines in the Nasdaq and Hang Seng demonstrate that market expectations for AI beneficiaries remain exceptionally high, leaving little margin for disappointment.
3. Geopolitical and Energy Market Risk - Although outright conflict escalation was avoided, the on-again, off-again cycle of ceasefires and military flare-ups in the Middle East continues to create uncertainty. Energy markets remain particularly vulnerable, and a renewed supply disruption could reignite inflation pressures globally and negatively impact economic growth.
4. Central Bank Policy Risk - The appointment of a new Federal Reserve Chair, Kevin Warsh, and the Fed's shift towards a more data-dependent stance introduces additional policy uncertainty. Markets are increasingly sensitive to inflation surprises and changes in rate expectations, creating the potential for continued volatility across both equities and fixed income markets.
5. South African Inflation and Growth Risk - While South African GDP growth surprised positively, inflation continues to trend higher. If oil prices remain elevated or the rand weakens materially, inflation pressures could intensify further, potentially limiting the SARB's flexibility and weighing on domestic consumers and businesses.

The sectors most exposed to current market risks are technology, consumer discretionary and listed property. Technology shares face increasing scrutiny around AI-related valuations and spending assumptions, while consumer-facing businesses remain vulnerable to the impact of higher inflation and interest rates on household spending. Property companies could also face pressure should inflation remain elevated and bond yields move higher. Conversely, defensive sectors such as healthcare, consumer staples and telecommunications may offer greater resilience should market volatility persist. Resource shares remain highly sensitive to commodity price movements and geopolitical developments, as demonstrated by the significant weakness in South African mining shares during June.

For investors, this environment reinforces the importance of diversification, valuation discipline and maintaining exposure across multiple drivers of return. While long-term growth themes such as artificial intelligence remain attractive, the path forward is unlikely to be linear. Portfolios should, therefore, balance participation in structural growth opportunities with sufficient exposure to defensive assets and quality businesses capable of navigating a more uncertain economic environment.