This week saw renewed investor confidence that economic growth can continue without reigniting price pressures.
Read this article to understand:
- The impact of lower oil prices and inflation expectations
- Why the US payroll report was welcomed despite coming in lower than anticipated
- The importance of paying continued attention to semiconductor shares
Markets ended the first half of the year on a surprisingly positive note. Just a few weeks ago, investors were worrying about conflict in the Middle East, higher energy prices and the prospect of further interest-rate increases. Today, the mood looks very different. The dominant story has been the continued fall in oil prices, following an interim agreement between the US and Iran. This helped reduce inflation concerns and improve confidence across markets.
Markets ended the first half of the year on a surprisingly positive note
The second quarter provided some remarkable numbers. Brent crude recorded its largest quarterly decline since 2020, falling by 38.4 per cent. That reduced the threat of inflation and supported a strong recovery in risk assets.
The S&P 500 delivered a total return of 15.2 per cent over the quarter, also its strongest quarterly performance since 2020, while semiconductor shares posted an extraordinary 88 per cent gain over the three months despite a weaker finish.
This week, investors increasingly focused on the outlook for lower inflation and interest rates. Europe was one of the main beneficiaries. The STOXX Europe 600 reached fresh record highs, also helped by signs of improving economic confidence. Germany announced a significant package of tax, pension and regulatory reforms, further supporting sentiment towards European assets.
Oil prices remained at the centre of the market story. Brent crude fell towards $70 per barrel, reaching its lowest level in four months as investors grew increasingly confident that the worst of the recent Middle East tensions had passed. Ongoing discussions involving US and Iranian officials helped calm their concerns about disruption in the Strait of Hormuz, even after some recent skirmishes.
One notable exception to the positive backdrop was the semiconductor sector. After leading markets higher for much of the year, chipmakers came under sustained pressure this week. The Philadelphia Semiconductor Index fell by more than 11 per cent in just two days on Wednesday and Thursday.
Much of the pressure appears linked to profit-taking, with investors reassessing valuations following months of extraordinary gains. Importantly, weakness in semiconductor shares did not spread to the broader market, and many other sectors continued to perform well.
The week’s most important economic release came from the US labour market. Payroll growth of 57,000 jobs was well below expectations of 113,000, and previous months were revised lower. However, the unemployment rate unexpectedly fell to 4.2 per cent, creating a balanced picture of slowing but resilient economic growth. Investors welcomed the report, interpreting it as evidence that the economy was cooling without stalling. As a result, their expectations for a near-term US interest-rate increase declined significantly over the course of the week.
This was a week where investors began to expect slower inflation, lower oil prices and steady economic growth. While the correction in semiconductor shares deserves close attention given their influence on markets, the broader message remains constructive.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 3 July 2026.
