The summer of 2026 has left us with markets characterised by the strength of the stock exchanges, the volatility of fixed income and increased geopolitical uncertainty. The main feature of these months has been the divergence between the economy and corporate profits displaying greater resilience than expected, as well as long-term interest rates under increasing pressure.
• Geopolitics and energy have once again taken centre stage.
The escalation of the conflict between the United States and Iran and the difficulties faced by ships passing through the Strait of Hormuz have led to a sharp rise in oil prices. Brent briefly exceeded 90 dollars per barrel, while European gas approached 70 euros per MWh. These increases in energy prices have led to renewed doubts about the speed of disinflation and conditioned expectations regarding the central banks.
• Fixed income has been the main source of volatility.
Long-term bond yields have recorded levels in several economies that haven’t been seen in over a decade. The ten-year US Treasury bond reached around 4.7%, against a backdrop of concern about the sustainability of public accounts, high debt issuance and the financing of large investments in artificial intelligence. Multi-year highs were also recorded in the long tranches of Germany, France, the United Kingdom and Japan.
The bond buybacks announced by the US Treasury may improve liquidity, but they won’t resolve the structural debt challenge.
• In contrast, the stock markets have performed favourably.
During August, the S&P 500 rose by 2.6% and the Nasdaq 100 went up by 4.2%, thanks in particular to technology. In Europe, the Euro Stoxx 50 and the Ibex 35 increased by 1%, while the emerging markets gained 3.4%. Despite this positive balance, the summer was also beset by episodes of rotation; the strategies with a greater focus on growth stocks and semiconductors underwent significant corrections in July, while energy, health and materials displayed greater resistance.
• Corporate profits have continued to provide support.
The second-quarter earnings season was solid on both sides of the Atlantic. In the United States, the forecasts of a large majority of companies were exceeded, with significant momentum provided by the energy, communications and technology sectors. In Europe, the percentage of positive profit-related surprises reached its highest level in the last three years. However, market reactions were more demanding, reflecting valuations that have already incorporated high expectations.
Source: FTSE, IBES, LSEG Datastream, MSCI, S&P Global, JPM AM. U SA: S&P 500. Europe excl. U K MSCI Europe (ex-UK). U K FTSE All-Share
• Artificial intelligence continues to act as one of the great structural forces.
The large technology groups have confirmed their plans for extremely high investments in data centres, semiconductors and infrastructure, while the benefits of AI are beginning to expand towards software, robotics, health and electricity.
This drive also requires more debt issuance, competes with governments for available capital and increases energy demand. With greater competition and stringent valuations, the market will demand increasingly clear evidence that this investment will be transformed into income and profits.
End-of-year prospects
Looking ahead to the coming months, the starting point remains reasonably stable; the economy is growing, corporate balance sheets remain solid and profits are providing support for risk assets. But the major indices are also at high levels and credit spreads are narrow, reducing the margin in the event of disappointments.
Therefore, autumn will probably be less marked by a single direction in the markets and more so by episodes of volatility and rotation. The resolution of the conflict in the Middle East, the course taken by oil prices, the credibility of the central banks, the evolution of long-term rates and the capacity for investment in AI to be transformed into profits will be the major factors to keep an eye on.
The central banks will continue to act prudently. The evolution of inflation, the labour market and energy prices will determine whether the Federal Reserve will maintain the pause in interest rates and whether the European Central Bank will regard a new rate adjustment as necessary (the market completely rules it out). Consequently, long-term bond volatility is likely to remain high.
As for equity, the strength of the profits and investments linked to artificial intelligence may continue to provide support, but the highs recorded by the main indices will leave less room for manoeuvre in the event of disappointments. Oil, monetary policy, public deficits and the evolution of the conflict in the Middle East are likely to be the factors that shape the home stretch this year.