How did the financial markets do?
Equities
- US equities were highly volatile. The market reached a record high at the end of April after good corporate results. Later on, technology companies in particular came under pressure, with the Fed indicating that interest rates are likely to remain high for longer. Higher interest rates hurt technology stocks, as their expected future profits will be worth less.
- European equities remained relatively strong. The trade agreement between the European Union (EU) and the US of 20 May gave export companies more certainty. The stock markets reacted calmly to the ECB’s rate hike, as investors had already expected it. However, higher energy prices and lower estimates of economic growth slowed the increase. Indeed, the ECB lowered its growth forecast for 2026.
- Emerging market equities performed relatively well. Technology and chip companies in Asia in particular showed strong performance. South Korea and Taiwan benefited from the growing demand for artificial intelligence. Growth slowed later in the quarter. Investors took money out of emerging markets and became more cautious.
- Listed real estate performed well, despite higher interest rates in the US and the EU. Demand for healthcare real estate and data centres in particular generated positive returns.
Bonds
- Government bonds were under pressure. The ECB’s interest-rate hike, the prospect of longer-term interest rates in the US and concerns about government deficits led to higher market rates, with the German 10-year yield reaching its highest level in years. Short-term US interest rates also rose sharply in mid-June. Investments in European government bonds ended the quarter with a slightly positive return.
- Riskier bonds outperformed this quarter. Emerging market bonds and corporate bonds with higher risk and higher yields achieved a more positive return (high yield), as investors demanded little extra interest for risk and corporate profits remained stable.