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Warnings of an AI bubble and a potential energy crisis are currently dominating financial markets. “The escalation in the Middle East is significantly changing the market environment,” says Thorsten Fischer, Managing Director and Head of Portfolio Management at Moventum AM. Geopolitical risks are becoming the new normal. While the US is benefiting from the AI boom, Europe is coming under greater pressure from energy prices and a weaker economy. “The gap between winners and losers in the markets is likely to widen further,” Fischer explains.

The latest escalation in the Middle East has noticeably changed the situation on equity markets. “In the past, geopolitical risks were primarily seen as short-term shocks,” Fischer says. “Now, however, they are being priced in as a structural burden.” In particular, uncertainty surrounding the Strait of Hormuz is increasing the risk of permanently higher energy prices and, consequently, rising inflation expectations. As a result, markets have scaled back their expectations of rapid interest rate cuts, while yields and volatility remain elevated.

In the US, however, the real economy has so far proved resilient. Leading indicators are stabilising, manufacturing is sending constructive signals and the ISM index recently reached its highest level in several years. New orders are also improving. “Overall, the US economy is proving considerably more resilient than might have been expected against the backdrop of the US-Iran conflict,” Fischer says. At the same time, however, the market regime is shifting: the Goldilocks scenario of declining inflation is giving way to a robust nominal economy combined with higher inflationary pressure.

Despite the challenging macroeconomic environment, US corporate earnings remain strong. During the first-quarter reporting season, S&P 500 companies reported earnings growth of around 30 per cent compared with the previous year; more than 80 per cent exceeded analysts’ estimates. Earnings trends remain stable, both in terms of earnings expectations per share and margins. Artificial intelligence (AI) remains a key driver: “The high capital expenditure by hyperscalers underlines that AI has long since moved beyond mere hope and has become a real-economy investment and productivity story,” Fischer says.

This combination of growth, earnings and AI momentum drove the US equity market to new record highs in the second quarter. At the same time, however, this also raises the bar for further share price performance: high valuations leave only limited room for disappointment. In particular, the recent sharp rise in bond yields could quickly lead to setbacks – not to mention another geopolitical escalation or weaker corporate figures in the second half of the year. In addition, the market is becoming increasingly differentiated. According to Fischer, sustainable earnings, cash flow quality and real productivity gains will be decisive going forward. Active selection is therefore becoming increasingly important for investors.

The rather mixed macroeconomic environment also argues against broad-based euphoria. Inflation expectations are rising, consumer confidence has recently weakened and the labour market is losing momentum. At the same time, however, the likelihood of a deep recession remains low. Overall, the US equity market is fundamentally well supported, even though short-term upside potential is limited by valuations, yields and the situation in the Middle East.

In Europe, by contrast, the geopolitical situation is weighing much more heavily on the market, as the region’s greater dependence on energy imports makes the eurozone more sensitive to rising oil and gas prices. Accordingly, inflation expectations have recently increased, while growth expectations have been revised downwards. “This increases stagflation risks,” Fischer warns. Given the current situation, hopes of further interest rate cuts have faded. In some cases, market participants are now even pricing in additional ECB rate moves by the end of the year.

European economic data are therefore already showing signs of strain: economic surprises, consumer confidence and financing conditions have deteriorated. The services sector has recently contracted again. Manufacturing is proving somewhat more stable, but is signalling only limited growth momentum. Despite announced fiscal and infrastructure programmes, Germany remains structurally vulnerable.

An additional challenge is that Europe currently lacks a clear growth driver. Valuations remain moderate, profit margins are stable and individual sectors are benefiting from fiscal stimulus as well as infrastructure and defence investment. However, there is still no visible counterpart to the AI and semiconductor boom in the US. “The European market structure is more strongly characterised by industrials, financials, energy and traditional value segments,” Fischer explains. “As a result, earnings are developing less dynamically overall.”

Overall, higher energy prices, rising inflation expectations and a weaker economy are being weighed against moderate valuations, increasing government spending and stable corporate earnings. “This makes a broad index rally less likely at present,” Fischer says. Europe needs a viable solution to the Middle East conflict far more urgently than the US in order to look towards the remainder of 2026 with greater confidence. The next market phase is therefore likely to be shaped more strongly by selection, regional differentiation and sector rotation.