We’re being reminded regularly that markets do not move in a straight line. Geopolitical tensions, inflation concerns and ongoing enthusiasm around artificial intelligence all influenced investor sentiment over the past month. While headlines can often create noise, it is important to focus on the bigger picture and understand the themes likely to shape markets over the coming months.
Here are the three most significant recent developments and what they could mean for investors.
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The Middle East Conflict and Why Oil Still Matters
One of the major global events during June was the ongoing uncertainty surrounding the conflict involving Iran and the disruption to shipping through the Strait of Hormuz. This narrow waterway is one of the world's most important energy routes, carrying a significant portion of global oil exports.
While a ceasefire agreement was announced, tensions remain elevated and questions persist about how quickly oil supply chains can return to normal. During the disruption, the United States and China played a significant role in helping stabilise global energy markets. Increased US exports and reduced Chinese imports helped offset much of the supply shock that would otherwise have pushed oil prices substantially higher.
Why does this matter to everyday investors?
Oil affects far more than the price of petrol. It is a key input into transportation, manufacturing, agriculture, packaging, construction materials and countless consumer products. Higher oil prices can flow through to business costs, food prices and ultimately inflation.
While energy markets have remained resilient so far, investors should continue monitoring developments in the Middle East. A prolonged disruption could place upward pressure on inflation and economic growth globally.
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Inflation Remains the Key Economic Story
For most of the past few years, central banks have been focused on bringing inflation back under control. June's data suggests progress is being made, but the fight is not over.
In Australia, headline inflation eased to 4.2% over the twelve months to April, down from 4.6%. However, underlying inflation measures remain elevated and still sit above the Reserve Bank of Australia's target range of 2-3%. Fuel, electricity and housing costs continue to be major contributors to inflation pressures.
In the United States, inflation indicators have also shown signs of re-accelerating. Producer prices, which often act as an early warning signal for future consumer inflation, have moved higher in recent months. Rising transportation costs and higher energy prices have been important factors.
The practical consequence for investors is that interest rates may stay higher for longer than many had hoped. Some economists continue to debate whether Australia could see one additional interest rate rise, while markets are also becoming more cautious about the timing of future rate cuts globally.
Higher interest rates create challenges for households and businesses but can also create opportunities for disciplined investors. The key takeaway is that inflation remains the most important economic variable driving central bank decisions and market expectations.
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AI Excitement Continues, But Investors Should Focus on Profits
Artificial intelligence remains one of the most discussed investment themes globally. Technology shares have continued to outperform broader markets, driven largely by excitement surrounding AI adoption and future growth opportunities.
However, an important distinction is emerging between companies generating profits from AI today and those hoping to generate profits in the future.
The biggest winners so far have been the companies supplying the infrastructure behind the AI boom. Businesses involved in semiconductors, data centres and advanced computing hardware have experienced extraordinary growth as demand for AI computing power continues to surge. Nvidia remains the most prominent example of this trend.
By contrast, many software providers and AI-focused start-ups are still spending heavily while searching for sustainable and profitable business models. This has led some market commentators to draw comparisons with previous periods of technological euphoria such as the railway boom, the electrification era and the dot-com bubble.
History suggests that transformative technologies often experience periods of excessive optimism followed by periods of consolidation before long-term winners emerge. Importantly, while individual companies may struggle, the underlying technology can still ultimately change the world and create enormous value.
For long-term investors, diversification remains critical. Rather than attempting to predict short-term market movements, focusing on quality businesses and maintaining a disciplined investment strategy remains the most reliable path to building wealth.
Looking Ahead
As we move into the second half of 2026, investors face a complex backdrop. Geopolitical tensions remain elevated, inflation appears more persistent than many expected, and enthusiasm around artificial intelligence continues to reshape markets.
Despite these challenges, markets have navigated uncertainty many times before. Successful investing is rarely about predicting the next headline. Instead, it is about maintaining a long-term perspective, staying diversified and remaining focused on your financial goals.
As always, if you have questions about your portfolio or would like to discuss your investment strategy, please reach out to the HMH Financial Services team.
This article is general information only and does not constitute personal financial advice. Please consider your personal circumstances before making investment decisions.