Market view July 2026: Cyclical optimism and IT nervousness

Particularly technology stocks were on the weak side in June, while defensive sectors performed well. As we see it, this indicates a market that has once again started to become a bit nervous about parts of the IT sector, while the solid macro backdrop supports other cyclical sectors. We have reduced our overweight in technology and energy stocks in June, but have increased our exposure to materials and cyclical consumption. Within the fixed income portfolio, we maintain our overweight in Nordic high yield, which is financed by an underweight in money market rates. 

Weak stock market, but good reasons for cyclical optimism

After two very strong months, the development in the world's stock markets has been on the weak side in June, with a decline in global stocks of 1% overall for the month. The dollar, on the other hand, has strengthened significantly against the Euro, which means that for a European investor, the return has improved significantly.

Both the Emerging markets, and American stocks have performed weakly in June, driven by weakness in energy and technology stocks. European stocks have fared better, driven by good returns particularly in finance, which is the dominant sector in Europe.

In addition to finance, the defensive sectors of health, utilities, and stable consumption have performed well in June. Within finance, it is bank stocks that have seen good development. The good performance of bank stocks indicates a market that is not particularly worried about the real economic backdrop. We share this perception. The latest macro data from the USA has been strong, supporting the impression of a solidly growing economy. The fact that another step has been taken towards a peace agreement in Iran also contributes to more optimism, or less pessimism, about growth prospects in Europe and Asia.

This is why we have tilted parts of the portfolio in a more cyclical direction in June. We have reduced our exposure to energy, from neutral to an underweight, while we have increased our holdings in materials and cyclical consumption. Within materials, we are moving from an underweight to an overweight, and the exposure is tilted towards metal and mining companies that do not derive much of their earnings from gold. 

Within cyclical consumption, we have increased our exposure to the subgroup "consumer services," which we believe provides better exposure to the real economy than the rest of this sector, which is dominated by technology companies like Tesla and Amazon. 

Signs of new nervousness around the IT sector

The real economic picture looks solid, but it has been clear over the past month that the market has nevertheless been characterized by nervousness. We believe this is due to renewed fears of bubble tendencies within the technology sector. 

Skepticism about whether the so-called "hyperscalers" (Microsoft, Google, Amazon, Meta, and Oracle) will achieve returns on the massive sums they have invested in data center construction has long characterized these stocks. This, along with fears that the business models of software companies in general are threatened by AI, may explain why the industry group software and services has performed weakly since last fall. 

Questions related to the AI labs (Open AI, Anthropic, xAI), which develop the AI models we use, and whether they will be able to make money from this, have also flourished for a long time.

The companies that supply memory and semiconductors used in the construction of the data centers, which the AI labs use to train their models, have however been protected from this uncertainty. Many have thought that these companies (Nvidia, Micron, SK Hynix, and similar) will make money regardless of what happens further down the AI value chain. This helps to explain why semiconductor companies have risen 50% in market value so far this year, and that they have accounted for 2/3 of the total increase in global market values during the same period.

Given the uncertainty surrounding AI and profitability in parts of the AI value chain, we believe it is natural to question whether semiconductor companies can continue to increase their earnings as much as is now expected. It is not necessarily a bubble that will burst, at least not at first, but with a strong rise in stock prices in a short time, earnings growth that does not seem sustainable in the long term, and a lot of uncertainty related to profitability from AI in general, we think it is reasonable to reduce exposure to this part of the market. 

Market view

Because of this, we reduced the overweight we had in IT stocks in our portfolios at the beginning of June. Part of our exposure to IT had been through futures on Nasdaq100, which meant we had more semiconductor exposure than we would have gotten by just having technology exposure via DNB Technology. This worked well in April and May, but at the beginning of June, we sold all we had of Nasdaq futures, and swapped this out for futures that provide broad US exposure (futures on S&P500). In June, we also had some futures on MSCI Emerging Markets, but because some of the largest semiconductor companies are in Taiwan and South Korea, and weigh heavily in this index, we have recently sold what we had here as well. This means we return to a neutral weight in emerging markets, after having had an overweight here in June. 

In summary, and simply put, we think it seems that the market is being driven a bit in two different directions right now, by two different forces. One – cyclical optimism as a result of good macro data in the US, and hopes for the reopening of the Strait of Hormuz – calls for a cyclical tilt of the portfolios. This is why we have increased our exposure to materials and cyclical consumption, and why we maintain the overweight in finance. The other – increased nervousness due to fears of bubble tendencies in parts of the IT sector – means that we also have some defensive positions, and that we reduce exposure to that part of the market where bubble fears dominate. This is why we have reduced exposure to IT, and why we maintain the overweight in health, which is a sector that has struggled for a long time, but performed well in June.