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The rally extends across risky asset classes, with the additional borrowing costs that high-grade US companies pay over US Treasuries dipping below 0.8 percentage points, their tightest level since 1998.\u00a0<\/p>\n
\u201cIt\u2019s fair to say that you\u2019ve never been paid less to take risk,\u201d said Jamie Patton, co-head of global rates at US asset manager TCW. \u201cIt\u2019s not like this is specific to any particular asset class. Every price seems to be indicating perfection.\u201d\u00a0\u00a0<\/p>\n
But she warned there was an \u201cincreasing paradox\u201d with rising geopolitical and trade risks, as the economic impact of Donald Trump\u2019s trade war becomes clear. <\/p>\n
The rally is not limited to the US: the MSCI All Country World index, which tracks stocks across developed and emerging economies, has hit an all-time high. Emerging market stocks, shunned by investors in recent years, have outstripped the global index in 2025, in a sign of investors\u2019 increased risk-taking. <\/p>\n
European and US credit has rallied in lockstep. Borrowing costs for several French companies have fallen below those of their government in recent weeks, a rare move that in effect means investors no longer demand extra compensation for lending to the corporate sector.<\/p>\n
Ben Inker, co-head of asset allocation at GMO, said \u201cfear of missing out\u2009.\u2009.\u2009.\u2009does seem to be what is going on, the assumption that everybody should be able to get rich\u201d.<\/p>\n
Wafer-thin credit spreads were the \u201cmost mystifying\u201d element of the rally, while the small-caps record high was striking given the weakening US economy, he warned. \u201cI just do not understand how you could not think that the path of economic outcomes is pretty volatile.\u201d<\/p>\n
<\/p>\n In equity markets, bets on the rise of artificial intelligence have dominated trading floors and powered US markets to dizzying heights over the past decade. But stocks\u2019 record valuations as a multiple of companies\u2019 sales, and the outsize contribution to the rally of just a few tech companies, have raised alarm bells.\u00a0<\/p>\n \u201cWe\u2019ve got really, really high geopolitical risks, an economic situation where the [US] job market is slowing and inflation is not fully under control, and\u2009extreme and historic market concentration,\u201d warned Kasper Elmgreen, chief investment officer for fixed income and equities at Nordea Asset Management. \u201cValuations don\u2019t leave a lot of room for error.\u201d<\/p>\n Investment firm GQG Partners this month described the stock market as \u201cdotcom on steroids\u201d \u2014 a reference to the 1990s internet stock boom and bust.\u00a0<\/p>\n \u201cInvestors [are] seemingly making a one-way bet on the AI mania, while appearing to ignore alarming fundamental issues,\u201d said the GQG paper, pointing to lofty earnings multiples, slowing revenue growth and the rising investment needs of the big AI firms like chipmaker Nvidia.\u00a0<\/p>\n The US stock recovery has been supported<\/a> by retail investors and companies piling in to \u201cbuy the dip\u201d, a series of tariff deals that have averted a worst-case scenario on trade, and tech giants\u2019 robust second-quarter earnings. <\/p>\n Matt Eagan, portfolio manager at Loomis Sayles, said that sky-high asset prices suggested investors were banking on \u201cproductivity gains of the kind we have never seen before\u201d from AI. \u201cIt is the number one thing that could go wrong.\u201d<\/p>\n Pouring fuel on the stocks and credit rally in recent weeks have also been mounting expectations that the Fed will slash borrowing costs over the coming year to support the world\u2019s biggest economy, after dire jobs numbers suggested<\/a> it was stalling. According to Bank of America, global stocks saw their biggest weekly inflow of 2025 this week as investors cheered the first signs of looser monetary policy.\u00a0<\/p>\n<\/a><\/p>\n