Global equity markets have posted a 6.8% gain year-to-date through April, but the advance rests on an increasingly narrow base, according to FTSE Russell's latest Global Equity Insights report. The data reveal that during April's rebound, roughly half of all gains in the FTSE All-World index came from just 13 stocks out of approximately 4,250 constituents. Every one of those names is tied to the artificial intelligence theme, representing fewer than a quarter of a percent of the index's holdings.
FTSE Russell analysts describe this level of concentration as historically extreme and warn that it reduces the market's overall resilience. The narrow leadership echoes patterns seen during the dot-com era, though the underlying drivers differ. The report notes that traditional defensive sectors such as healthcare and consumer staples provided inconsistent protection during the Middle East conflict that rattled markets in March. Instead, energy, utilities, listed infrastructure, and mega-cap technology names emerged as what the report calls "new defensives," holding up or even gaining as broader markets sold off.
April's partial recovery then snapped back toward technology leadership, mirroring the pre-conflict playbook. Tech earnings were strong, with most companies beating estimates, but markets reacted differently this time to announcements about artificial intelligence capital spending. Where previous quarters saw investors applaud AI investment plans almost uniformly, stocks were punished in cases where the link between spending and near-term revenue growth looked unclear. That shift could fragment the technology sector further in the months ahead, particularly as the Magnificent 7 earnings reveal diverging cash flows and one-time gains.
The macro backdrop has deteriorated meaningfully. Inflation expectations have risen sharply on both sides of the Atlantic, largely as a consequence of elevated energy prices stemming from the Middle East situation. Two-year inflation swap rates in the US have climbed by roughly one percentage point since December 2025 to around three percent. European economies, more exposed to imported energy, have seen even sharper moves, with UK and eurozone expectations rising by 1.2 and 1.7 percentage points respectively.
Central bank expectations have repriced accordingly. Fed Funds futures, which were pricing two rate cuts by the end of 2026 before the conflict began, have now shifted to pricing no change at all, with a fifty percent probability of a hike in the first half of 2027. The UK outlook is even more hawkish, with markets now pricing two rate increases by the end of 2026. The Federal Trade Court's recent ruling on tariffs adds another layer of uncertainty to the inflation outlook.
Consumer confidence has slumped. The University of Michigan sentiment survey has fallen to its lowest reading since the survey began in 1959, a deterioration the report partly attributes to spillover effects from tariff policy rather than solely the Middle East situation. Eurozone confidence collapsed in April as energy supply risks mounted. US gasoline prices sitting at $4.45 per gallon are approaching the $4.50 threshold that the Dallas Fed has previously identified as the level at which demand destruction could set in.
Despite the gloomy macro picture, valuations have become more palatable across most regions following a broad de-rating in forward price-to-earnings multiples. Developed Asia Pacific ex Japan now trades at 10.7 times forward earnings, sitting comfortably in the cheapest decile of its own ten-year history. The US has pulled back from the 99th percentile valuation it occupied in the fourth quarter of 2025, dropping to the 68th percentile, though at 21.5 times forward earnings it remains expensive by any absolute measure. The global UHNW population growth may provide some support for risk assets, but the concentration risk remains a key concern for advisors.
