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10 August 2026

After a recent wobble, the S&P 500 is back at fresh highs as investors lean into the view that strong earnings can be sustained by the AI investment boom. The question now is whether the fundamentals can keep up with the optimism.

On the macro side, the AI capex impulse is shifting. In cash terms, US computing and peripheral equipment investment rose at a pace of around 25% annualised in Q2. But this reflected a surge in prices – real, inflation-adjusted spending fell slightly. This suggests that the incremental boost to real GDP from compute-heavy capex may have peaked. More encouragingly, there are signs that AI demand is broadening, with industrial equipment investment seeing a strong quarter.

In markets, Q2 earnings have surprised sharply to the upside. Year-on-year S&P 500 profit growth is tracking around 47% (for results reported so far), roughly double expectations at the end of June. But investors are being selective: firms translating AI spend into visible revenues are being rewarded, while those hiking investment at the expense of free cash flow – without a clear path to returns – are being marked down. Credit markets are also worth watching. Hyperscalers’ increasing use of debt to fund capex has lifted issuance meaningfully, with funding needs likely to remain substantial in 2027. That raises the risk of periodic market “indigestion” and the potential for bouts of spread widening and volatility.

For now, AI capex remains a key driver of macro and market momentum, but the balance of risks is shifting. In a
K-shaped economy, signs that parts of the AI capex contribution are peaking could potentially crimp growth momentum. While in stocks, a focus on execution and returns means that firms face the dual pressures of delivering returns on investment while fending off competition from lower-cost AI models. As the market focus moves from “build” to “payback”, further volatility is likely. 

The world is in an infrastructure boom: the energy transition, surging electricity demand, AI, and digitalisation are all driving an unprecedented need for investment. From renewable power grids and battery storage to hyperscale data centres and fibre networks, the assets underpinning tomorrow's economy need trillions in funding.

Traditionally, big infrastructure projects have relied heavily on debt financing. However, as banks have become more selective about long-duration lending and infrastructure spending has risen, private capital has stepped in. In recent years, investors have tended to focus on infrastructure equity to build sector exposure, leaving debt relatively under-allocated. But that imbalance – and a relative shortage of long-term lending capital – has created opportunities for lenders to negotiate stronger financing structures, attractive yields, and better downside protection.

Today, infrastructure debt is no longer confined to long-dated, investment-grade loans, and benefits from flexible strategies across duration and risk. For investors, it combines structural growth with increasing flexibility, offering diversified ways to access one of the defining investment themes of the coming decades. 

The strategic case for EM local debt remains intact, but the next phase of the cycle should reward selectivity, with future performance likely to depend more on country selection than broad exposure.

FX intervention can boost the currency in the near term. And a significant net short positioning of the yen implies risks of a sudden appreciation. But for the time being, rate differentials fundamentally weigh on the currency’s outlook. 

Relative sectors winners and losers have already emerged. Some energy firms have enjoyed higher prices and margins, while others in chemicals, autos, metals, and manufacturing have come under pressure. Geographically, parts of Asia look particularly exposed given the region’s dependence on downstream products imported from the Middle East. More broadly, if disruption persists, the message for credit investors is clear: look beyond short-term earnings sensitivity and focus on balance-sheet resilience, pricing power, supply-chain flexibility and liquidity.

Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Diversification does not ensure a profit or protect against loss. Any views expressed were held at the time of preparation and are subject to change without notice. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Source: HSBC Asset Management. Macrobond, Bloomberg, Refinitiv, FactSet. Data as at 7.30am UK time 07 August 2026.

For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector or security. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index. Source: HSBC Asset Management. Data as at 7.30am UK time 07 August 2026.

Global equity markets got off to a positive start last week, with a rebound in tech and AI-related stocks following recent bouts of price volatility. Renewed hopes of progress towards a resolution to the Middle East conflict and supply disruptions through the Strait of Hormuz buoyed sentiment, with oil prices falling. A strong performance in US stocks was driven by further solid results from the ongoing Q2 earnings season. Optimism was also felt in European markets, while performance was more mixed across Asia. The Nikkei 225 index traded higher following the recent intervention by Japanese and US authorities to support the yen. In fixed income, long-end US Treasury yields began the week approaching multi-year highs, but later pulled back ahead of key US employment reports scheduled for Friday and CPI data due this week.