Market Update 16th June 2026

Cutting through it all

There’s nothing like a good distraction in politics.

Sir Keir Starmer’s position has been under threat for some time, but he will be hoping the World Cup can come to his aid with some welcome good news for one of the home nations. Or maybe it won’t. The pub industry will welcome the extra punters, but more games (and possibly hangovers) than ever mean the UK economy might lose something in the region of £680m in lost productivity.

That is likely to put further pressure on GDP numbers that, with a small contraction in April, are starting to creak a little. In fact, the macro news is somewhat concerning across the board.

Over the remainder of the year, close to a million UK households are due to remortgage on to higher rates, which will potentially eradicate around £200 a month from each of their budgets at a time when inflation remains above target and oil prices continue to create uncertainty. As a result, UK consumer confidence still languishes in the doldrums. And that’s just some of the domestic issues… Given all of that, one would be forgiven for thinking equity markets would be challenged, to say the least.

But they are not. To use some imagery, their double digit returns in the last 12 months present a double digit return of a different kind to the difficult backdrop. I am not highlighting this is to say I think markets are inappropriately high, it is more to draw attention to the remarkable resilience of many leading corporations.

The stock market is a collection of businesses constantly striving for improvements. Their search for new markets, cost savings and a better way of doing things is both ruthless and relentless. Challenges like inflation are remodelled to present an opportunity to raise prices. New technology like AI is not seen as a disruptive force, rather a tool to be deployed to save costs.

With this mindset in place, companies have been able to grow the topline and find efficiencies too. Consequently, profit margins have been rising in recent years and look likely to grow further. That’s quite something given the backdrop. Not all companies will take the right choices, but over time, history tells us that this pursuit of growth will lead to more rights than wrongs and is capable of creating significant wealth.

A glance at the data tells us it is this growth that’s powering the equity market rally. Over the last 12 months, equity markets in the UK and US are both up by in the region of 20%. Forecasts for earnings have risen by an almost identical magnitude. Therefore, through the lens of the most widely used valuation assessment, a simple ratio between share prices and earnings, the market today is no more expensive than it was a year ago despite being around 20% higher. In simple terms, a market that is 20% more profitable deserves to be 20% higher. You get what you pay for.

Of course, that doesn’t mean everything is hunky-dory. Broadcom and Halma investors will tell you all about this. Both businesses recently published results that met expectations, and each talked about strong continued growth in the year ahead. The results and guidance they gave was, on the face of it, completely reasonable. The market’s reaction was to sell each off by double digit percentages because it had got ahead of itself and had predicted each would upgrade expectations and deliver even more rapid growth.

This shows that there are some signs of exuberance about. With that in mind, we turn to the big event of the week. The IPO of SpaceX.

It is fair to say there has been a degree of exuberance here too. The business has three divisions, two of which are loss-making. The overall operating profit number is also red, and it sheds cash too. We are aware that businesses like Netflix, Amazon and others have grown strongly out of this phase, but there are many others without the same success.

For that reason, our investment strategy for direct equity investments focuses on businesses that are robustly profitable, generate positive free cash flow and have strong track records.

We saw SpaceX shares rise strongly on the first day of trading, and large fluctuations are certainly possible as the market is pulled around by diametrically opposing forces. On the one hand you have extreme retail investor interest (fuelled by no less than 22 investment banks) and NASDAQ’s updated index inclusion criteria, which means trackers are required to buy three times as much as one might imagine. On the other, you have those difficult financials, the jaw-droppingly ambitious goals that include establishing human colonies on Mars, and the stonking valuation.

There will almost certainly be a cacophony of noise over the coming days and weeks, it may be best to bear in mind the wise words of Benjamin Graham. In the short-term, the market is a voting machine. In the long-term it is a weighing machine.

George Salmon – Senior Research Analyst

Hawksmoor Investment Management Limited is authorised and regulated by the Financial Conduct Authority (www.fca.org.uk) with its registered office at 2nd Floor Stratus House, Emperor Way, Exeter Business Park, Exeter, Devon EX1 3QS. This document does not constitute an offer or invitation to any person in respect of the securities or funds described, nor should its content be interpreted as investment or tax advice for which you should consult your independent financial adviser and or accountant. The information and opinions it contains have been compiled or arrived at from sources believed to be reliable at the time and are given in good faith, but no representation is made as to their accuracy, completeness or correctness. The editorial content is the personal opinion of George Salmon. Other opinions expressed in this document, whether in general or both on the performance of individual securities and in a wider economic context, represent the views of Hawksmoor at the time of preparation and may be subject to change. Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you originally invested. Currency exchange rates may affect the value of investments. FPC26715.