Markets Keep on Climbing: AI Optimism and FOMO

Global equity markets have posted all-time highs again this week, continuing to climb, up c.10% year to date. This comes despite the volatility in April, when policy uncertainty, prolonged high interest rates, and geopolitical tensions were in the spotlight. A few months have made a remarkable difference.

Whilst we braced for more bouts of volatility earlier in the year, this hasn’t necessarily been the case. Instead, we have seen a market with a fuel tank that never seems to run dry. A few key drivers are keeping the rally well-oiled:

A barrage of better-than-expected economic data has reassured investors that growth remains on track, particularly in the US, where quarterly GDP has exceeded expectations.
AI tech trend continues to draw investors in.
Fear of Missing Out (FOMO) is evident, as investors have been increasingly willing to look past negative sentiment in favour of potential upside.

See the chart below, illustrating the strong global equity returns year to date, despite the volatility in April:

A clear illustration of this resilience can be seen in technology stocks. Even some of the more speculative names have surged c.20% since July, far outpacing their more profitable peers.

Currently, the market dynamics see investors largely overlooking negative news, and rather buying into positive headlines, such as rate cuts and AI deals. The market’s upward trend shows remarkable resilience, but it’s not without its subtleties.

The Noise

This week, US GDP data showed a stronger-than-expected rebound at 3.8%, with quarterly growth well above forecasts of 3.3%. Consumer spending and business investment both outpaced expectations, highlighting the resilience of the US economy despite tariff turmoil a few months ago.

In currency markets this week, the US Dollar held firm against most major currencies, supported by robust economic data and expectations of a measured Fed monetary policy path. The dollar index (which measures the US currency against a basket of developed peers) was up 0.7% this week but remains down 9.3% year to date.

This week in bond markets, there have been subtle shifts as investors weigh stronger economic data against expectations for future rate cuts. Yields on longer-dated Treasuries have risen, reflecting a more cautious outlook on inflation and central bank policy, while shorter-term rates remain anchored by the possibility of gradual easing. This divergence highlights that even amid an equity rally, fixed income markets are carefully pricing in both growth and potential policy changes.