• Despite ongoing fears of an AI-driven market bubble, the Nasdaq 100 has risen 13% in the past six months, with Intel surging over 200% since October 2025 after beating earnings expectations by 2,109%.¹
• While US equity valuations remain elevated, earnings growth has outpaced share price gains, with forward P/E ratios still below last year’s peak of 23x despite markets hitting all-time highs.²
• Bowmore sees further upside potential in the US economy, supported by a 3.3% annualised rise in manufacturing production, continued AI investment, and plans to increase the Pentagon budget by 50% to $1.5 trillion.³

A rational bubble

Towards the end of last year, stock market news flow was dominated with headlines around an AI bubble which led us to pen our weekly note, on Halloween, titled ‘Bubble, bubble, toil and trouble’. This note acknowledged the potential risks associated with AI stocks but ultimately agreed with Mohamed El-Erian, Chief Economic Advisor at Allianz, who described the AI bubble as a ‘rational bubble’. Valuations were elevated but we could understand why – capex was sustainable in the short-term and we were starting to see evidence of productivity gains and monetisation.

Fast forward six months and the Nasdaq 100, the tech heavy US index, is up 13%. Expectations were high but Q1 2026 earnings within the sector came in strong – Intel, for example, is up over 200% since 31 October 2025, having beat earnings expectations by 2,109%. However, we’re once again seeing news flow dominated by calls for a market correction, including Sarah Breeden, Deputy Governor for Financial Stability at the Bank of England who recently said that stock markets are too high and set to fall.⁴ So what do Bowmore think this time?

Expensive markets

There is no denying that valuations remain elevated. The below chart from JP Morgan shows different regions’ forward P/E ratios which is our core valuation metric and crudely shows whether a region is cheap or expensive.

Source: JPMorgan Guide to the Markets, April 2026

The US is at the top end of the range of valuations it typically trades in, so there’s no denying it is expensive, however, last year it was up at 23x at one point so whilst the US market is at an all-time high, valuations aren’t because earnings forecasts have moved up quicker than share prices. Meanwhile, Japan and Europe are trading above their averages but within a comfortable range, and actually the UK and EMAP regions are trading at average valuations (neither cheap nor expensive). The question is: can they go higher?

Room to grow

US

• The US is seeing a manufacturing boom at the moment as companies are bringing supply chains onshore as a result of tariffs and the global fracturing in trade. The first quarter of 2026 saw a 3.3% annualised surge in US manufacturing production and, whilst higher energy prices will weigh on transport and warehouse costs, we do not think it will be enough to offset this spark in industrial activity.
• The labour market looks to be in a sweet spot whereby it has softened enough such that wage growth shouldn’t trigger a second wave of inflation, but strong enough that consumer demand should hold up.
• The US government is not slowing down on spending; they are looking to raise pentagon’s annual budget by 50% to $1.5 trillion.
• The central bank will likely keep interest rates where they are, but crucially we see more chance of a surprise cut from Warsh at the Fed than a hike.
• Tech innovation in the US remains unparalleled. The capex on AI and Datacentres is only growing, as is AI adoption.² The whole value chain is benefiting from this expenditure.

Europe 

• Higher energy costs have been particularly impactful on Europe that has many energy-intensive industries, which is why the region has lagged so far in 2026 and the European Central Bank is one of few that is expected to hike rates this year.⁵
• However, Europe is turning around, led by Germany’s generational fiscal expansion plan. The enormous sums of money the government plans to spend on defence and revolutionising the country’s infrastructure open up some really attractive areas of investment.

Emerging Markets and Japan 

• These regions represent our largest active overweights in portfolios. We are hosting a webinar next week where we will be diving more into our outlook and specifically what gets us excited about these regions. No spoilers, so keep an eye out for that!

Bowmore portfolios 

We are optimistic markets can go higher from here – the vast amount of expenditure from governments and corporates around the world rationalises the current valuations. That being said, we are cognisant we have been quite risk-on the past couple of years, much to the benefit of client portfolios, and are now looking at reigning in that risk to a more neutral standpoint. Simply put, we anticipate more ‘normal’ levels of returns from equity markets (high single digit) over the next couple of years.

Source: Alpha Terminal

The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a guide to future performance.

Sources:

¹ Yahoo Finance

²JPMorgan Guide to the Markets

³Numera Analytics, US Macro

⁴Global stock markets are too high and set to fall, says Bank of England deputy – BBC News

⁵Capital Economics, European Outlook