Financial markets entered the final weeks of summer with a somewhat unusual combination of resilient economic activity, improving corporate earnings and persistently high long-term bond yields. While volatility remained elevated in parts of the technology and energy markets, the broader macro picture changed less dramatically. The global economy continues to hold up reasonably well, supported in particular by strong US manufacturing momentum and by the ongoing investment boom linked to artificial intelligence and data-centre infrastructure. At the same time, geopolitical tensions remain elevated and continue to contribute to inflation risks, especially via energy and commodity prices.
The most important market development has been the renewed rise in long-dated government bond yields. US 10-year and 30-year Treasury yields have approached levels last seen before the global financial crisis, while the move has increasingly spread to Europe. The persistence of high yields despite several softer US macro data points suggests that markets are demanding a higher term premium. Fiscal concerns are an important part of this repricing. US debt-servicing costs are rising, the Treasury is relying heavily on short-dated issuance and gross financing needs remain exceptionally high. Similar concerns are visible in parts of Europe, most notably in France. Combined with higher structural spending on defence and the longer-term pressure from ageing populations, this leaves little room for a rapid normalisation of government borrowing costs.
For central banks, the backdrop is therefore challenging. Growth remains too resilient to justify aggressive rate cuts, while geopolitical uncertainty and higher commodity prices keep inflation risks alive. The AI investment cycle adds another dimension: it is a powerful source of demand and earnings growth, but also absorbs very substantial amounts of capital. If long-term yields rise further, financing conditions for this investment boom could eventually become more restrictive.
Equity fundamentals, however, remain encouraging. The latest earnings season brought a broadening of positive revisions in both Europe and the US. European 2026 earnings growth expectations have increased from around 14% to 16%, with upgrades extending beyond Energy and Financials into Technology, Industrials and selected consumer sectors. Improving manufacturing PMIs in the Eurozone further support the view that the cyclical backdrop is strengthening. This is important because rising yields are easier for equity markets to absorb when they reflect stronger growth and are accompanied by rising earnings expectations.
Nevertheless, valuation risk is increasing. Higher risk-free rates mechanically reduce fair-value earnings multiples, and much of the recent positive earnings-revision cycle may already be reflected in prices. A further material rise in bond yields could therefore weigh on equities even if the economic backdrop remains constructive. Growth stocks would be particularly sensitive given the capital intensity of the AI build-out, while renewed geopolitical or inflation pressures could also challenge consumer discretionary and financial stocks. Overall, a somewhat cautious stance remains appropriate: neutral on equities, overweight cash, with a preference for Europe over the US and for credit over government bonds.
Author:
Thomas Neuhold, CFA
Co-Head of Real Estate Research
Kepler Cheuvreux
1 September 2026
 |  |
Note
Wiener Börse AG would explicitly like to point out that the data and calculations given in this report are historic values, which do not permit any conclusions as regards future developments or value stability. Price fluctuations and loss of capital are possible in securities trading. The contribution is the personal opinion of the analyst and does not constitute a financial analysis or a recommendation for investment by the exchange operating company, Wiener Börse AG.