Crunch time for markets as storm clouds gather

Three forces are coalescing to test whether this AI bull market has finally run its course. The first and most obvious trigger was Friday’s US jobs data. May’s non-farm payrolls came in much stronger than expected – and perversely, in the current environment, that was not good news. President Donald Trump, characteristically, did not see it that way.

“With a great Jobs Report, like just announced, stocks should go up, not down,” he posted. “That’s the way it was for 200 years.” He did not get his way.

Investors immediately repriced the Federal Reserve’s interest rate path, betting that any chance of rate cuts in 2026 is now firmly off the cards and that hikes are a possibility before year end. The two-year treasury rose 12 basis points in minutes, to 4.17%, a fifteen-month high. Emerging markets felt the pain too; the rand slipped past R16.50 to the dollar and the JSE shed 2.6% on the day, with Prosus among the hardest hit.

For a market that had stretched multiples to extraordinary highs on the assumption of cheaper capital, the implications of higher interest rates are acute. Not only do higher rates increase the cost of borrowing for the AI hyperscalers that are raising enormous sums of debt to fund their data centre ambitions, but they also lower the present value of the (hypothetical) profits from AI.

The second source of anxiety is once again the price of oil. The war in the Middle East, now entering its fourth month, has kept the notorious Strait of Hormuz effectively closed for nearly as long. Brent Crude averaged around $104 in May; higher than before Trump and Netanyahu launched their ill-fated folly, but lower than many had feared it would be if it wasn’t open by mid-June. The relative calm has been achieved through emergency reserve releases and demand destruction, mostly in Asia but also in Europe and emerging markets.

Temporary fixes

But these are temporary fixes. American strategic petroleum reserves are at a 22-year low, and if commercial inventories continue to be drawn down at the pace seen in April and May – roughly 100 million barrels a month – analysts expect Brent could average between $130 and $140 in late June, or even higher. The implications for global growth and inflation are potentially severe. Iran seems determined to replay the trick of 1980; push the oil price as high as possible until US elections in November, leaving the US president to feel the brunt. Then it was Jimmy Carter, now it will be Donald Trump.

The third, but perhaps most consequential source of turbulence concerns the AI narrative itself. Last Thursday, AI chipmaker Broadcom lost more than $285-billion in market capitalisation in a single session, the fourth largest single wipeout in US corporate history. While its revenue guidance on chip sales came in higher than most consensus estimates it didn’t beat the most bullish forecasts; this simply wasn’t good enough for a market priced for perfection. The stock fell as much as 16% on the day. A further $200-billion was wiped from the broader semiconductor sector as fears grew that their earnings growth is unsustainable. That a company growing strongly and beating forecasts could suffer such a savage beating illustrates the central vulnerability of a market with such lofty valuations; risks are far greater to the downside than the upside.

The timing could hardly be worse for the tech bros attempting record-breaking Initial Public Offerings in the coming weeks. Rocket-to-AI group SpaceX is expected to list this week in a deal that could value Elon Musk’s poster child at $1.78-trillion and raise $86-billion. Anthropic and OpenAI are both plotting their own Wall Street debuts. Google has announced a $58-billion equity raise to fund data centres, while the FT reported last week that Meta was planning something similar. Its share price fell 7% on the news. In aggregate, these transactions could add something like $4-trillion in new market capitalisation over mere weeks. Fresh equity raises on this scale are unprecedented.

What makes this timing particularly uncomfortable is the narrowness of the rally that has preceded it. The market gains of the past few months have been overwhelmingly in AI-related tech and semiconductors. But now, that sector is shifting from being the engine of equity returns to be an enormous issuer of new equity to fund the AI buildout. That is a peculiar and fragile dynamic.

Liquidity is, as always with such frothy markets, the thing that matters the most. Previous bull markets have managed to keep going up on tides of ample liquidity; the turning points have always come when it has tightened. Higher bond rates, a sustained oil shock, and a record wave of equity issuance would together constitute a meaningful tightening of financial conditions, even without any further action from the Fed.

Bitcoin

Bitcoin, ironically, may finally have found a use – as a proxy for global liquidity. It has historically tracked broader market liquidity conditions with reasonable closeness, and on that reading the current signal is not encouraging. The crypto benchmark fell below $60,000 last week, less than half its 2025 peak. Losses elsewhere in the crypto complex are even worse; aggregate market capitalisation has shed roughly $2-trillion from its October peak of $4.38-trillion with numerous coins now worthless. When liquidity tightens, crypto tends to be the harbinger of worse to come.

None of this means the bull market is over. Equities have absorbed much over the past five years, with investors every time coming in to “buy the dip” and markets recovering. Indeed, Monday and Tuesday showed tentative rebounds. But the mood has changed, with the entrammelled sense of greed that has pervaded recent weeks fading and starting to feel like precisely the type of crazed euphoria preceding a reckoning.

Many periods are important in the global economy. But the next few weeks, for good or for bad, will be seminal. They are likely to decide the course of markets for months, even years to come. Fasten your seatbelts. DM