The rise in energy prices has pushed up inflation (expectations), leading to higher government bond yields. Although improving prospects for an end to the conflict between the US and Iran have brought some calm to bond markets, we do not expect bond yields to fall significantly in the near term. Higher interest rates are generally negative for equities, as they increase financing costs for companies and put pressure on valuations.
The rise in equity markets is largely driven by technology companies. The rollout of artificial intelligence (AI) has triggered an unprecedented investment wave, resulting in explosive earnings growth for AI-related companies such as semiconductor producers. This earnings growth provides strong support for the broader equity market. Other sectors are also benefiting, including companies involved in building datacenters or supplying the energy required to power them.
As long as earnings growth remains strong, investors are willing to accept higher interest rates. However, expectations have risen significantly, leaving little room for disappointment. Strong earnings growth is also expected in the coming years. Any slowdown in earnings growth could reverse the currently positive sentiment and potentially mark the end of the equity rally. Moreover, technology companies are particularly sensitive to higher interest rates, as a large part of their expected cash flows lies further in the future.
"}},{"componentType":"sectionTitle","title":"Companies competing for investor capital"},{"componentType":"paragraph","richBody":{"value":"The scale of AI-related investment is unprecedented. Hyperscalers – companies that operate AI datacenters, such as Amazon, Microsoft, Alphabet (Google) and Meta – are expected to invest more than $700 billion this year. This amount could approach $1 trillion next year. Initially, these investments were financed through strong cash flows, but companies have increasingly turned to capital markets. In addition to issuing bonds, companies are now also raising capital on equity markets.
The IPO of SpaceX has just taken place, with Elon Musk’s company raising a record $75 billion. Later this year, AI companies Anthropic and OpenAI are expected to follow, aiming to raise tens of billions of dollars as well. In addition, Alphabet recently issued $80 billion in new shares, and Meta is considering doing the same.
Markets must therefore finance these substantial investments while also absorbing a growing supply of both bonds and equities. This will test investors’ risk appetite. Elon Musk’s vision appears persuasive enough for the SpaceX IPO to have been successful so far, but whether Anthropic and OpenAI can replicate this remains to be seen. If these IPOs fail to attract sufficient demand, enthusiasm for AI could cool down.
Investors also need to free up capital to participate in new issuances. While there is still a significant amount of cash on the sidelines, some investors may sell existing holdings to make room. It is often easiest to take profits on assets that have performed strongly. This may also help explain the weaker performance of gold and bitcoin in recent months.
"}},{"componentType":"sectionTitle","title":"Adjusting to geopolitical uncertainty"},{"componentType":"paragraph","richBody":{"value":"Finally, geopolitical risks – and in particular the unpredictable nature of President Trump – cannot be ignored. His trade war has not been successful, as courts have blocked his import tariffs. The war with Iran has also fallen short of expectations. In addition, his explicit calls for lower interest rates have not been heeded by the central bank. It is also unlikely that the new Fed Chair, Kevin Warsh, will respond to these demands as long as inflation remains elevated.
Moreover, the Republican Party risks losing its majority in both the House of Representatives and the Senate in the midterm elections in November, which would significantly limit his ability to implement policy. In short, Trump has yet to leave a clear mark in his second term, and a cornered politician can behave unpredictably. This raises the question: what can we expect next?
Investors, however, have grown accustomed to Trump’s tendency to deliver strong rhetoric but less forceful action. “TACO” has become something of an investment strategy: both in the trade conflict and in the tensions with Iran, it has often been observed that “Trump Always Chickens Out”. He appears highly sensitive to financial market reactions. Nonetheless, geopolitical uncertainty will remain a factor and may periodically influence market sentiment, leading to increased volatility.
In such an environment, it is important to remain calm, avoid being driven by emotion, and stay committed to your long-term investment plan.
"}},{"componentType":"sectionTitle"},{"componentType":"paragraph","richBody":{"value":""}},{"componentType":"linkList","iconTitle":{"title":"Read more"},"textLinks":[{"text":"Midyear outlook 2026: Homepage","url":"/en/personal/investing/market-news-and-views/investment-outlook-2026-home"},{"text":"Midyear outlook 2026: Opportunities","url":"/en/personal/investing/market-news-and-views/investment-outlook-2026-opportunities"},{"text":"Midyear outlook 2026: Equities","url":"/en/personal/investing/market-news-and-views/investment-outlook-2026-equities"},{"text":"Midyear Outlook 2026: Download PDF","url":"https://assets.ing.com/m/7dfc82cb56e72468/original/Investment-Outlook-2026.pdf"}]},{"componentType":"sectionTitle","title":"Good to know"},{"componentType":"paragraph","richBody":{"value":"Investing involves risks and costs. The value of your investment may fluctuate. Past performance is no guarantee of future results. Read more about the risks of investing .
This publication has been prepared on behalf of ING Bank N.V. and is intended for information purposes only. ING Bank N.V. obtains its information from sources deemed reliable and has taken the utmost care to ensure that the information on which it based its views in this publication was not incorrect or misleading at the time of publication. ING Bank N.V. does not guarantee that the information it uses is accurate or complete. The information contained in this publication may be changed without any form of announcement. Copyright and data file protection rights apply to this publication. Data from this publication may be reproduced provided that the source is stated. ING Bank N.V. has its registered office in Amsterdam, commercial register no. 33031431, and is regulated by the Dutch central bank De Nederlandsche Bank (DNB) and the Netherlands Authority for the Financial Markets (AFM). ING Bank N.V. is part of ING Groep N.V.
"}}]},"hasMacro":false,"id":"afdfee5d-7f8b-4386-b08e-508e0889b3e3","localeString":"en-GB","mainHeaderZone":{"backLink":{"textLink":{"text":"Market news and views","url":"/en/personal/investing/market-news-and-views"}},"componentType":"productHeader","coreHeader":{"body":"High interest rates pose a risk to equity markets if earnings growth weakens. In addition, strong demand for capital from companies could lead to more volatile markets. Finally, there is always the unpredictability of Trump, although investors are becoming increasingly less concerned about it.","headerImage":{"extension":"jpg","original":"https://assets.ing.com/asset/8af63dd6-2348-4875-beb1-cf5ca5d30a08/Potd-aug.jpg","transformBaseUrl":"https://assets.ing.com/transform/8af63dd6-2348-4875-beb1-cf5ca5d30a08/Potd-aug","type":"image","width":3840},"subtitle":"Higher interest rates may start to bite","title":"Mid-Year Outlook 2026: Risks"}},"publishDate":"2026-06-25T12:44:44.905+02:00"}}