Space dreams versus Earth reality

Over the last month, central banks have taken an increasingly hawkish turn that has forced markets to start reassessing the AI trade’s remarkable momentum. As inflation continues to rise, policymakers have remained cautious despite positive headlines around a US/Iran ceasefire deal.

Optimism around the AI trade has been the main driver of risk assets, with momentum stocks leading. But due to rising uncertainty on potential future hikes, markets have started to question whether AI’s elevated valuations can remain justified, particularly in a more uncertain interest-rate environment with increasing IPO supply. Rotations have already started to materialise, as investors take profits and broaden exposure into less crowded areas of the market.

Looking ahead, concerns around AI profitability, valuations and concentration risks are likely to persist. Capex overspending and lacklustre results remain key risks for US hyperscalers, especially as the recent rally in memory-chip makers may be showing signs of excess. Well-backed IPOs can help support the market, but more players and more metrics for assessing the AI space will increase the scrutiny of current leaders and could drive broader diversification. Against this backdrop, we still see growth holding, but not strongly enough to offset rising macro costs and broadening price pressures.

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Monica Defend

Monica Defend

Head of Amundi Investment Institute

Diversification is paramount as investors start to move away from overcrowded areas, taking profits and making room for new IPOs.

Monica Defend, Head of Amundi Investment Institute

Balancing inflation and growth risks

investment

Balancing inflation and growth risks

Under a “fragile de-escalation" scenario, inflation is likely to remain above central banks’ targets for longer, with rising risks of second-round effects, particularly in Europe, where the growth outlook remains fragile. In the EU, in particular, we think markets are currently underestimating growth risks and, consequently, we do not expect a full-fledged hiking cycle by the central banks (ECB, BOE), which makes the short end of the curves attractive. 

In the US, robust labour data, high headline inflation and a relatively hawkish Fed are putting upward pressure on US rates, to levels that we consider interesting in the middle part of the curve. 


 



 



 

 

An industrial play for Europe

Markets have remained supported by earnings growth, helping to offset concerns over rising US yields. Looking ahead, monetary policy actions and policy stance will be key factors to monitor. Strategically, we continue to see high valuation and concentration risks in the US. Hence, we favour Europe, Japan and EM. Europe, in particular, is shifting from a consumption-led model toward one focused on resilience, reinforcing the region as a long-duration investment theme.

In Japan, the equity market outlook remains constructive, with earnings momentum driven by banks and AI-related stocks. Emerging markets are also supported by their appeal as a source of diversification amid geopolitical and economic uncertainty.
 


 

An industrial play for Europe

stacking coins

Mildly pro-risk, with an emphasis on selectivity

GIV MAY EM

Mildly pro-risk, with an emphasis on selectivity

May was positive for risk assets, but the macro backdrop weakened slightly. Growth is becoming more uneven while inflation is showing more clearly in the data across the US, the Euro Area and the UK, leaving central banks less comfortable. Against this backdrop, the tone remains mildly pro-risk, with greater selectivity.

We remain mildly positive on equities, supported by strong earnings, but have reduced concentration risk by lowering our exposure to US equities and diversifying into Europe and the equally-weighted S&P 500. European equities remain under-owned and have lagged the US, but we see potential for a rebound in H2. Given persistent uncertainty, we continue to maintain  protection on the US and the Euro Area. 

 

Changes vs previous month

  • Multi asset: We have tactically reduced concentration risk, rotating from US equities into Europe and the equally-weighted S&P 500. In fixed income, we have reduced exposure to EM short rates. 

  • Fixed income: We now have a close to neutral stance on duration as a relatively hawkish Fed is putting upward pressure on US rates to levels in the middle part of the curve that we consider interesting. On credit we are positive with an increased focus on high quality.

  • Equities: We are increasingly focused on Europe, which is shifting from a consumption-led model toward one focused on resilience, reinforcing the region as a long-term investment theme. 

2026-07-08

Global Investment Views - July 2026

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