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Bruno Lopes Mendes
- 22 September 2026
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 6, 2026Details
- Abstract
- This box analyses developments in US equity markets during the recent AI boom and highlights recent signs of heightened price differentiation within the broader equity market rally. It shows that, over the past years, US equity valuations have been bolstered by strong realised and expected earnings tied to the AI boom. Risk appetite in US equity markets has been strong, with compensation for equity risk falling to relatively low levels during this period. These factors have supported resilience in US stock markets despite pressures from higher longer-term interest rates and geopolitical headwinds. However, a note of caution is warranted, as market sentiment can be subject to sudden shifts and there is heightened risk price differentiation among the tails of higher-risk technology firms within the AI-driven rally.
- JEL Code
- G15 : Financial Economics→General Financial Markets→International Financial Markets
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
Q43 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→Energy and the Macroeconomy
F51 : International Economics→International Relations, National Security, and International Political Economy→International Conflicts, Negotiations, Sanctions
- 25 June 2026
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 4, 2026Details
- Abstract
- This box assesses how energy supply disruptions associated with geopolitical shocks are transmitted to US financial markets, leveraging on the indicator developed by Iacoviello and Tong (2026). Whereas negative geopolitical events typically reduce output, they are ambiguous with respect to inflation. However, those that also constrain global oil supply are inflationary and lead to deeper recessions. In these cases, stock prices fall more persistently, the dollar appreciates markedly, and risk metrics such as corporate bond spreads increase and remain elevated. This pattern is driven by oil price dynamics: instead of falling, as they would if supply were unaffected, oil prices rise sharply and persistently. Applying model-implied elasticities to the war in the Middle East which started in February 2026 suggests that markets have reacted only moderately to the shock. This may reflect confidence in the robustness of the US economy or expectations that the conflict will be short-lived, but it also leaves markets vulnerable to abrupt repricing if these assumptions prove wrong.
- JEL Code
- G15 : Financial Economics→General Financial Markets→International Financial Markets
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
Q43 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→Energy and the Macroeconomy
F51 : International Economics→International Relations, National Security, and International Political Economy→International Conflicts, Negotiations, Sanctions