Private Wealth

November 2, 2026

Record highs in equity markets, a surprisingly strong US economy and billions of dollars flowing into artificial intelligence. October certainly offered plenty of reasons for optimism. Yet towards the end of the month, the first cracks began to appear in the stock market rally. Suddenly, investors started asking a question that few had wanted to hear for a long time: Who is actually going to pay for the enormous investments in artificial intelligence, and when will they start to pay off?

Ironically, the companies that had previously driven the stock market higher were the very ones that triggered the change in sentiment. Alphabet lost around $500 billion in market value following its quarterly results. Not because Google had suddenly stopped making money, but because investments in data centres and AI models are consuming ever larger sums. At the same time, artificial intelligence threatens to cannibalise parts of Google's highly profitable search advertising business. Meta also unsettled investors with its enormous financing requirements.

This is changing the way investors perceive the AI boom. Until recently, rising investment spending was celebrated as a promise of future growth. Now, investors are increasingly asking questions about profitability. That does not mean the AI boom is over. But it may mean that the days of investors giving companies unlimited credit for future promises are coming to an end.

Fundamentally, however, the economic backdrop is far from unfavourable for equities. The US economy grew at a remarkable annualised rate of 3.4% in the third quarter. Consumer spending remained robust, while business investment increased significantly. The expansion of AI infrastructure, in particular, is now making a substantial contribution to economic growth. The United States is demonstrating a degree of resilience that Europe can currently only dream of.

The greatest source of pressure continues to come from the Middle East. The war with Iran and disruptions in the Strait of Hormuz pushed oil prices temporarily above $117 per barrel in October. This not only makes energy more expensive but also fuels inflation and increases pressure on central banks. Bond markets came under pressure accordingly, with yields on ten-year US Treasuries temporarily exceeding 5%.

The situation is particularly uncomfortable for the European Central Bank. It had already raised interest rates in September, despite the weakness of the eurozone economy. The latest growth figures confirm the problem. Excluding the exceptional contribution from Ireland, the eurozone economy grew by just 0.2% in the third quarter. France's economy actually contracted, while French government bond yields reached their highest level since 2002.

In our view, the ECB's early interest rate increase was a monetary policy mistake. A supply shock caused by war and energy shortages can hardly be resolved through higher interest rates. More expensive credit neither produces additional oil nor reopens the Strait of Hormuz. It does, however, weigh on investment, consumption and an already fragile economy. As long as pronounced second-round inflationary effects remain absent, further monetary tightening appears particularly problematic.

We therefore welcome Christine Lagarde's announcement that she intends to step down early. A change in leadership offers an opportunity to reassess monetary policy strategy and give greater consideration to economic risks. Nevertheless, her successor will not be able to resolve the trade-off between price stability and economic growth easily.

And what about equity markets? Risks have undoubtedly increased. High oil prices, rising financing costs and growing doubts about the returns on AI investments all argue for greater caution. The upcoming US midterm elections add another element of uncertainty.

Nevertheless, our underlying outlook remains constructive. The US economy continues to grow, companies are still generating solid profits, and artificial intelligence retains considerable economic potential. The crucial question will be whether these enormous investments can be transformed into sustainably profitable business models.

The stock market party is therefore by no means necessarily over. But after October's record highs, it is likely to become more demanding. Share prices will increasingly be determined not simply by the scale of the AI vision, but by companies' ability to turn that vision into actual profits. And for long-term investors, that is a healthy development.