Markets were dominated this week by two familiar forces as the Middle East conflict and the AI investment boom left investors to balance competing realities.
Read this article to understand:
- The competing forces driving markets this week
- Why oil prices rose and the bond markets' response
- How the AI investment boom remains in focus
A familiar playbook unfolded across markets this week, with conflict driving energy prices higher and artificial intelligence continuing to dominate investor attention.
Markets spent much of this week navigating two powerful themes that have become increasingly familiar in recent months: geopolitical tensions in the Middle East and an artificial intelligence (AI) investment boom that continues to drive and reshape global markets. The result was a week of sharp swings, although one that ended with investors largely looking through the noise and refocusing on growth.
Oil was the first pressure point. Renewed US military strikes against Iranian targets and uncertainty around the fragile US-Iran ceasefire pushed Brent crude from around US$72 a barrel at the start of the week to briefly above US$80. With roughly a fifth of the world's oil passing through the Strait of Hormuz, investors quickly worried that higher energy prices could feed back into inflation and prompt central banks to raise interest rates.
Bond markets were at the centre of the reaction to this renewed tension in the Middle East, with investors demanding higher yields to hold government debt.
Borrowing costs rose across Europe, pushing Germany's ten-year bond yield to 3.09 per cent and France's equivalent to 3.93 per cent, an 18-year high. UK gilts also came under pressure; all of which reflect Europe's greater sensitivity to energy costs than the United States. It was a reminder that events thousands of miles away can still influence mortgages, borrowing costs and investment markets much closer to home.
Despite that backdrop, AI remained the dominant market theme. Semiconductor companies had a rollercoaster week. The Philadelphia Semiconductor Index fell almost six per cent in a single session before rebounding more than five per cent days later. The sector is still up around 87 per cent this year – an extraordinary move by any historical standard.
Samsung captured the scale of investor expectations. Despite reporting a remarkable nineteen-fold increase in quarterly profits, its shares fell more than nine per cent at one stage. The message was clear: good results are no longer enough when investors are already pricing in near perfection.
Companies are still showing huge confidence in the long-term AI opportunity. Micron announced plans to invest US$250 billion in US manufacturing through 2035. SK Hynix completed the largest US listing ever by a foreign company, raising US$26.5 billion, with demand more than seven times the shares available. The figures show the scale of capital flowing into the infrastructure behind AI.
This enthusiasm is no longer confined to the largest technology companies. Shares in the so-called Magnificent Seven have largely moved sideways this year, while shares in a broader group of AI-linked companies has taken over market leadership. More than 300 companies in the S&P 500 have outperformed the Magnificent Seven this year.
Asia offered a reminder of both opportunity and risk
Asia offered a reminder of both opportunity and risk. South Korea's stock market entered a technical bear market after falling more than 20 per cent from its recent high, despite still being one of the world's strongest performing markets this year. In Japan, borrowing costs reached their highest levels since the mid-1990s as investors questioned the country's increasingly ambitious spending plans.
By the end of the week, markets had regained their footing. Hopes that diplomatic talks between the US and Iran would continue helped push oil prices back towards US$76 a barrel while investors were left balancing two competing realities.
Geopolitical risks and higher energy prices remain genuine concerns. At the same time, corporate investment in AI shows little sign of slowing and investors remain optimistic ahead of the US quarterly corporate reporting season, which has just begun.1
Past performance is not a reliable indicator of future results.
References
- Source of all the data for this article: Aviva Investors and Bloomberg. Data as of 10 July 2026.
