Global Markets Rise as Earnings Offset Growth Fears

London, 3 August 2026 — EBM Market Analysis — By Nick Staunton

Global equity markets ended the week broadly higher as strong corporate earnings and renewed confidence in artificial intelligence outweighed slower economic growth, persistent inflation and uncertainty over the next move by major central banks.

The gains were uneven. Large technology companies again carried much of the US market, European equities reached fresh highs and selected Asian technology shares recovered sharply. Smaller companies and more economically sensitive sectors continued to lag, suggesting investors remain willing to take risk—but only where earnings provide enough protection.

The result is a market increasingly divided between companies able to justify their valuations and those still trading on promises of future growth.

US earnings steady the AI trade

The Nasdaq, S&P 500 and Dow Jones Industrial Average all advanced during the week, helped by better-than-expected results from Microsoft and Amazon.

Technology stocks had initially weakened as investors questioned whether the hundreds of billions of dollars being committed to data centres, chips and AI infrastructure would generate sufficient returns. The concern was not that demand for artificial intelligence had disappeared, but that spending was accelerating faster than the revenues needed to support it.

Microsoft’s cloud growth provided reassurance. Amazon’s earnings added to the sense that the largest technology companies remain capable of converting AI investment into commercial demand.

That helped reverse some of the pressure described in EBM’s analysis of the recent AI-led sell-off across global markets.

But the recovery does not settle the valuation argument. Investors are increasingly separating profitable infrastructure providers from companies whose AI exposure remains largely promotional. The market is still prepared to reward spending, but only where management can demonstrate a credible route from capital expenditure to revenue.

The Federal Reserve offers little comfort

The Federal Reserve kept its benchmark interest rate unchanged at between 3.5 and 3.75 per cent.

The decision was widely expected. More significant was the division inside the central bank, with three policymakers supporting an increase. That dissent underlined the continued concern that inflation remains above target and may prove harder to eliminate than markets had assumed.

Investors were also disappointed by the lack of clear guidance on when policy might change. The Fed appears unwilling to promise cuts while inflation remains elevated, but equally reluctant to tighten aggressively while economic growth is slowing.

US data reinforced that tension.

The Federal Reserve’s preferred inflation measure showed that price growth moderated in June, yet second-quarter economic expansion weakened as lower government spending, exports and business investment offset resilient household consumption.

Consumer confidence fell for a third consecutive month. The labour market remains relatively stable, but households are becoming more cautious as borrowing costs, housing expenses and uncertainty over the economic outlook persist.

The US economy is not in recession. It is becoming more dependent on consumer spending and corporate earnings to compensate for weaker investment and tighter financial conditions.

Europe reaches another record

European markets delivered a stronger performance, with the STOXX Europe 600 reaching a fresh intraday high. Germany, France, Italy and the UK all recorded gains as corporate results improved and technology sentiment recovered.

Eurozone GDP expanded by 0.4 per cent during the second quarter, exceeding expectations. Government spending and investment linked to artificial intelligence helped offset the pressure from geopolitical tensions, high energy costs and weak global manufacturing demand.

Spain remained one of the region’s strongest economies, supported by services, tourism and domestic consumption.

The resilience is notable because Europe continues to absorb several simultaneous shocks. Germany’s manufacturers face weaker Chinese demand, rising competition and costly energy, while transport and supply chains remain vulnerable to physical disruption. The latest fall in Rhine water levels has already forced German industry to reduce production.

Inflation also remains uncomfortable.

Consumer prices increased slightly in July, driven by services and non-energy industrial goods. Although inflation has fallen sharply from its crisis-era peaks, it remains above the European Central Bank’s long-term objective.

That leaves policymakers in a familiar position: reluctant to keep monetary policy restrictive for too long, but unwilling to declare victory while services inflation remains persistent.

Germany shows resilience, not recovery

Germany’s economy expanded faster than expected despite higher unemployment, weak household spending and softer business investment.

Exports provided support, but the broader industrial picture remains fragile. German companies are managing high costs, slower Chinese demand and growing competition from manufacturers that once served primarily as customers.

Berlin is responding by mapping the technologies and industrial components China still depends on, preparing potential leverage should commercial tensions escalate. EBM examined that shift in Germany’s preparations for a possible EU trade war with China.

The change in policy is important. Germany is no longer treating exposure to China solely as a commercial opportunity. It is beginning to regard dependence as a strategic risk.

Growth during one quarter does not reverse that structural challenge. It merely shows that Europe’s largest economy has not yet surrendered to it.

The UK remains constrained

The Bank of England also kept interest rates unchanged, warning that renewed tension in the Middle East could place additional pressure on energy prices.

The UK economy continues to experience modest growth, but the housing market is cooling and households remain sensitive to mortgage and rental costs. Annual house-price growth slowed further during the latest period.

London’s equity market has nevertheless benefited from its defensive composition. Energy, mining, banking and consumer-goods companies have attracted investors seeking dividends and visible cash flow rather than exposure to the most expensive parts of the technology sector.

That rotation has helped the FTSE 100 outperform during periods when AI-linked stocks have come under pressure.

Asia’s technology divide widens

Asian markets produced the most dramatic movements.

Japanese equities declined modestly after a significant earthquake in the Kumamoto region raised concerns over supply-chain disruption. The Bank of Japan kept rates unchanged but maintained that further increases remain possible if inflation continues moving towards its target.

The yen strengthened sharply, prompting speculation that Japanese authorities may have intervened in foreign-exchange markets. A stronger currency reduces import costs but can weaken the overseas earnings of exporters that dominate Japan’s equity market.

China’s performance was more divided.

Mainland shares came under pressure as investors questioned technology valuations and the speed of AI investment. Hong Kong performed better, supported by gains in Tencent, Alibaba and other large technology groups.

The market debut of memory-chip manufacturer ChangXin Memory Technologies also demonstrated continuing investor confidence in China’s effort to build a domestic semiconductor industry.

Beijing has maintained its preference for targeted fiscal and monetary support rather than a broad stimulus programme. Manufacturing and services activity slowed in July, but policymakers continue to direct capital towards artificial intelligence, advanced manufacturing and strategic technology.

This reflects the same industrial contest driving America’s support for domestic minerals, chips and energy infrastructure. Yet, as hedge funds betting against US-backed critical-minerals companies have demonstrated, government support does not automatically create commercially successful businesses.

The Bigger Picture

The week’s gains suggest investors remain willing to overlook slower economic growth when companies deliver strong earnings.

That is not the same as broad confidence.

Markets are increasingly concentrated around a small number of companies and industries capable of producing visible revenue growth. Microsoft and Amazon can restore sentiment across an entire technology sector. Samsung and SK Hynix can drive an 18 per cent rebound in South Korea’s stock market. Energy and mining companies can lift European indexes when geopolitical risk rises.

The danger is that this concentration makes markets more sensitive to individual earnings reports, policy signals and shifts in sentiment.