A declining week behind us, AI return expectations under the magnifying glass
Summary
- Last week saw declines in European and US stock markets as investors reassessed technology sector returns and funding needs, with indices falling and credit spreads widening.
- AI investments continue to exceed expected productivity benefits, with around 85% of AI ecosystem revenue generated within the ecosystem, and current utilization rates estimated to generate EUR 200 billion in annual efficiency benefits against EUR 800 billion in investments.
- Investors shifted to government bonds for safety, leading to the largest single-day rally in the US bond market since the Silicon Valley Bank collapse, despite rising Brent crude prices.
- US macro data showed strength with falling jobless claims and rising manufacturing PMI, while inflation expectations increased; in the eurozone, inflationary pressures lowered the composite PMI to 51.9, still indicating growth.
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Automatic translation: Originally published in Finnish 26/10/2026, 06:04 GMT. Give feedback here.
Last week was a declining week on the European and US stock markets. The markets reassessed the returns on technology sector investments and massive funding needs. Indices fell, and credit spreads widened. However, the belief that technology will continue to drive US economic growth held firm.
| Indexes | Close | 1-week change | YTD | |
| OMX Helsinki | 12904,3 | -3,8 % | 3,9 % | |
| Eurostoxx 600 | 635,8 | -1,4 % | 7,4 % | |
| S&P500 | 7623,7 | -0,5 % | 11,4 % |
Behind the market movements is the key question of how technological progress translates into economy-wide productivity and corporate earnings. AI is being adopted widely but superficially, and risk management has not kept pace with the development. I wrote in the summer that AI investments still clearly exceed the expected productivity benefits. Around 85% of AI ecosystem revenue is still generated within the ecosystem, as hyperscaler investments are reflected in suppliers' revenue. At current utilization rates, AI would generate an estimated EUR 200 billion in annual efficiency benefits, while investments run at around EUR 800 billion per year.
As technology stocks wavered, investors sought safety in government bonds. On Thursday, the US government bond market saw its largest single-day rally since the collapse of Silicon Valley Bank. This occurred even though Brent crude rose to USD 116 per barrel, its highest level since April. The volatility is not surprising, because as I wrote earlier in October, hedge funds have replaced passive central banks as buyers of government bonds, and they react sensitively to prices. Their share of the US government bond market is already around 8%. In addition, investor leverage is at a record level, which can amplify market movements.
Spread to German yields by country, basis points
Source: LSEG
Movements in interest rates are also revealing vulnerabilities elsewhere. The French yield spread against Germany has widened to around 170 basis points, which has also increased Italy's yield spread. The debt burden has also grown in the United States. According to Ray Dalio, interest expenses already consume around a fifth of federal revenue, as I went through in last week's review.
US macro data was nevertheless strong. Initial jobless claims fell to 194,000, and the manufacturing PMI rose to 56.0, while employment grew at its fastest pace since March 2012. However, inflation expectations rose, as consumers' one-year inflation expectation accelerated to 4.7%. In the eurozone, by contrast, increased inflationary pressures weighed the October composite PMI down to a reading of 51.9. However, the readings remain clearly above 50 and on the side of growth, which bodes well for economic growth figures as well.
