Rising yields weigh on markets.AI provides support.

Equity markets proved comparatively resilient, but the picture beneath the surface was mixed: the AI ecosystem continued to carry the major indices, while interest‑rate‑sensitive segments lagged. With history suggesting that the start of a hiking cycle is rarely fatal for equities, selectivity and a sound assessment of valuations, earnings momentum and sentiment remain essential.

Bond markets at the center of the turmoil

The Federal Reserve, under Chairman Kevin Warsh, raised its key rate by 0.25% to a range of 3.75% to 4.00%, its first hike since 2023, and left the door open for further steps. Higher energy prices stemming from the Middle East conflict, heavy government bond issuance and concerns over fiscal sustainability added pressure. Ten‑year US Treasury yields climbed around 0.50% over the month, while European bonds also fell as the ECB raised rates and warned of persistent inflationary pressure. Losses on corporate bonds were largely rate‑driven, with risk premiums remaining comparatively stable.

AI provides resilience, market breadth stays narrow

Technology and AI‑related companies underpinned the US indices, while property, utilities and smaller companies came under greater pressure. European equities underperformed, weighed down by rising financing costs and sensitivity to high energy prices. Within technology, the AI ecosystem remained the key driver, with semiconductor firms joined by providers of storage solutions and data center infrastructure. Micron beat on revenue, profit and outlook, yet the muted market reaction underlined how high the bar now sits for the winners of the AI investment cycle.

Geopolitics remains a source of uncertainty

The unresolved situation in the Middle East kept energy supplies and shipping routes in focus, with the Red Sea and the Bab al‑Mandeb Strait joining the Strait of Hormuz in the spotlight. Houthi attacks on vessels and Saudi infrastructure heightened uncertainty. The US‑China meeting stabilized relations and reduced the risk of immediate escalation, but fundamental differences over critical raw materials, technology and security policy persist.