Market Insights October 19, 2026

Artificial intelligence put to the test by the markets.

Technology stocks experienced a sharp decline last week. In an environment of elevated interest rates, investors are increasingly questioning both the cost of massive investments dedicated to artificial intelligence and their ability to generate profits. The stock market difficulties faced by certain highly leveraged AI infrastructure players have reinforced these concerns.

Nevertheless, the sector’s fundamentals appear robust. Numerous studies indicate that companies continue to accelerate the adoption of AI to enhance productivity. Likewise, the first earnings releases from the technology sector confirm sustained demand, with visibility in some cases extending through 2030 for the equipment required to manufacture semiconductors.

The development of AI therefore continues unabated, but the market is becoming more demanding regarding its profitability. The next key milestone will be the release of earnings results from the major US technology companies. Investors will primarily be looking to determine whether AI adoption is beginning to translate into tangible financial benefits.

Europe: improving fundamentals, persistent external risks

European economy is proving more resilient than expected. Despite geopolitical tensions, leading indicators improved over the summer and now exceed the levels recorded at the beginning of the year. Credit growth also remains robust despite higher interest rates. This momentum is being driven primarily by the industrial recovery, supported by investments in defense, infrastructure and, increasingly, artificial intelligence. Germany, which had long lagged behind, is showing signs of recovery, while Southern Europe continues to demonstrate solid resilience.

However, the picture remains nuanced: consumer spending continues to be the weakest link, against a backdrop of purchasing power erosion caused by inflation, while higher interest rates could weigh on the residential real estate market. In France, ahead of the 2027 presidential election, deteriorating public finances and persistent social, economic and political uncertainties continue to 
fuel concerns. These concerns are already partly reflected in the yield spread versus Germany and are unlikely to support either a sustained appreciation of the euro or a meaningful decline in French government bond yields.

The United Kingdom appears particularly vulnerable, with bond yields close to their highest levels in 20 years. Rising interest rates are rapidly being transmitted to households through mortgage borrowing costs, thereby weighing on purchasing power and consumption. They are also increasing pressure on already fragile public finances and restraining an economy that lacks 
growth momentum.

Despite these headwinds and some recent profit-taking, European equity markets continue to post strong year-to-date performance, supported in 
particular by the first acceleration in corporate earnings growth in three years.

Europe also provides a source of diversification. Its equity indices are less concentrated in a handful of technology giants, while investor positioning remains moderate. Nonetheless, several risks persist, including rising bond yields, 
the 2027 electoral cycle, energy supply tensions, and a social environment, particularly in France, that could contribute to market volatility. A more selective approach therefore appears warranted. In particular, we are adopting a more cautious stance toward the UK market, as its high sensitivity to interest rates and the deterioration of its public finances have led us to reduce our exposure.

This week's figure: 5.08%

10-year US Treasury yields declined significantly this week, moving away from their recent peak of 5.36%, despite the release of higher-than-expected September inflation data (+3.7% YoY). This market reaction suggests that the bulk of the bond market correction is now behind us.