NVIDIA (NSQ:NVDA) became the first company to achieve a $4 trillion market cap this week, having gained around 20% so far this year. Investors appear to be comfortable that breakneck growth in demand for the company’s chips will render insignificant any possible negative impact from tariffs and other macro factors.
This confidence is reflected in the US S&P 500 index, which also hit new highs during the week. At the time of writing, more than eight in 10 of the index’s constituent companies have delivered share price gains over the last three months.
Rightly or wrongly, US equity investors just don’t seem nervous. This seems to be down to the so-called TACO trade – Trump will Always Chicken Out – a view that’s evolved as numerous tariff threats and deadlines have been rolled back at the last minute since April.
As a result, the stock market’s ‘fear gauge’ – the VIX volatility index – is trading at levels that have historically corresponded to fairly benign conditions for investors:
It’s always possible that this confidence is misguided, of course. Some commentators are pointing out that record US equity prices are at odds with the more cautious view being taken by bond markets, where investors seem to be pricing in a more downbeat outlook for the world's largest economy.
Bond investors are traditionally seen as the smart money, but given the broader uncertainties of this situation, I’m not sure there is a conclusive right answer just yet.
The good news for UK equity investors is that the animal spirits on show in US equity markets have been starting to appear in the UK market, too.
Small and mid-cap indices enjoyed a strong Q2. All the UK’s main indices are now in positive territory for the year:
We don’t yet know how durable this rally will be. While I’m fairly positive about the opportunities in British shares, the UK economy doesn’t necessarily seem in a strong position to drive growth.
We learned on Friday that GDP fell by 0.1% in May. There seems to be a plausible case to believe that further tax rises might yet become necessary.
Looking at the UK equity market specifically, there’s also…
