The past week saw divergent performances across global markets, with the tech-heavy Nasdaq rising over 3% while European markets fell by a similar amount. By the start of this week, markets had settled somewhat from the recent volatility.

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In Europe, politics re-emerged as a key driver of market sentiment. The French primary elections saw centrist incumbent Emmanuel Macron suffer losses to both left-wing and right-wing populist parties. Both of these parties are promising significant fiscal spending that some believe France cannot afford. As a result, the spread between French and German bonds, seen as a measure of political risk in France, widened to levels not seen since the Eurozone crisis a decade ago.

This challenges the assumption that Western political leaders and central banks will maintain modest policies after the negative market reaction to the UK's recent fiscal plans under Liz Truss. The final French elections in the coming weeks could lead to further market instability if the current dynamic holds, though markets are hoping this proves to be more of a temporary protest vote.

In the U.S., a lower than expected CPI print suggested inflation may be moderating more than anticipated. Core CPI (excluding housing, food and energy) was flat to slightly negative for the month. However, it remains to be seen whether this is a resumption of disinflationary trends in a still-strong economy, or an early indicator of economic weakening and potential recession, something few are expecting but warrants monitoring in the months ahead.

Returns were more muted in Australia (-1%) and global small caps, likely reflecting concerns around slowing global growth. Emerging markets held steady. The S&P 500 rose 2% and the Nasdaq outperformed.

Notably, the market action over the past 6 weeks has paralleled the "fizzy" sentiment seen at times in 2021 and 2023, with meme stocks and mega-cap tech back in favour. NVIDIA, Apple, Microsoft, and other tech heavyweights drove the entirety of the S&P 500's 8% gain during this stretch, with the tech hardware space getting a particular boost from AI-related announcements. Ex-technology, the rest of the market was largely flat to down, potentially signalling an underlying bifurcation in the U.S. economy.

The key takeaway is that after a strong start to the year, markets have hit a choppy patch in recent weeks. The Nasdaq's surge appears to be a tech-driven anomaly in an otherwise sideways market. Whether this is the market getting ahead of itself or a justified bet on future innovation and growth remains to be seen.

Easing bond yields could signal a Goldilocks soft landing, or a weaker than expected economy. Monitoring incoming data will be key to discerning which narrative proves most accurate. Further commentary and insights will be shared in the weeks ahead as the picture becomes clearer.