For decades, investors looked to oil prices as the primary driver of global sharemarkets. A spike in crude often signalled inflation, higher business costs and weaker corporate earnings. Today, that relationship has shifted dramatically. Artificial intelligence has become the dominant force behind market direction, with the world’s largest technology companies carrying such enormous weight that enthusiasm for AI infrastructure and software is often enough to offset broader economic concerns.
That shift has created an unusual disconnect. Oil prices continue to edge higher as tensions between the United States and Iran remain unresolved, keeping markets wary of potential disruptions to Middle Eastern supply. Under previous market cycles, rising oil alone may have been enough to pressure equities. Instead, investors continue to focus on AI spending, earnings potential and future productivity gains, allowing major US indices to remain elevated despite a backdrop that would traditionally encourage caution.
Closer to home, the Reserve Bank of Australia continues to paint a more restrained picture of the economy. While inflation has eased from its peak, forecasts suggest interest rates may remain restrictive for longer than many borrowers would like. At the same time, economists are watching Australia’s growing private credit market closely. Higher borrowing costs, slowing consumer demand and increasing pressure on household budgets are expected to contribute to a gradual rise in loan defaults, particularly among businesses and borrowers outside the traditional banking sector. It serves as a reminder that tighter monetary policy often takes years, not months, to fully work its way through the economy.
Meanwhile, precious metals continue to tell a very different story from equities. Gold and silver remain technically oversold, even as geopolitical risks persist and inflation remains above the levels central banks would prefer. Normally these conditions provide strong support for bullion, yet investor capital continues to flow towards high-growth technology companies instead. History suggests these periods of divergence rarely last forever. If confidence in expensive equity markets begins to weaken, the combination of elevated geopolitical risk, persistent inflation and relatively inexpensive precious metals could see investors rotate back towards traditional safe-haven assets.
For much of the past 50 years, oil was considered the world’s economic heartbeat. Almost every industry relied on cheap energy, so rising oil prices increased transport costs, manufacturing expenses and inflation, often leading to weaker company profits and falling sharemarkets.
Today, the structure of the market has changed. Technology companies now account for a far larger proportion of major indices like the S&P 500 than energy companies. Businesses driving the AI revolution are investing hundreds of billions of dollars into data centres, chips and software, and investors are valuing those future earnings far more aggressively than traditional industries.
That doesn’t mean oil no longer matters. Higher energy prices still influence inflation, consumer spending and central bank decisions. However, in the short term, optimism surrounding AI has become powerful enough to outweigh many of those traditional economic signals. It’s a reminder that markets don’t always move on today’s fundamentals they often move on tomorrow’s expectations.
