Artificial intelligence and Magnificent 7: a ticking time bomb for investors?
Artificial intelligence and the Magnificent 7 - the seven biggest tech companies in the world - are back. And if you look closely, you will see that the list is growing. Why are they so dominant? And what are the opportunities as well as the risks for investors? Mark Van Assche, account manager Private Banking and Wealth Office talks about it with Heng-Ta Quach, portfolio manager at KBC Asset Management.
29/10/2025
Economy
- Weakening job growth and shrinking savings surpluses, along with inflation remaining high due to higher import tariffs, are weighing on US consumers' purchasing power. Our economists do not anticipate a recession, and in fact have slightly upgraded their growth forecasts for 2025 and 2026 - though the rate of growth is admittedly slightly lower than in recent years. Overall, therefore, we are still looking at a slowdown in growth.
Commodity prices - inflation
- With energy prices under control and declining wage growth, inflation rates are continuing to fall almost everywhere. Inflation in the euro area is already within the central banks' 'comfort zone'. In the US, however, core inflation remains somewhat higher and the rising import duties are having a noticeable effect on output prices.
- With a number of key trade agreements in place, the new average import tariff is estimated at 16-17% (compared to 2.5% before Trump II). These levies are expected to gradually trickle down into retail prices in the coming months, keeping inflation above the Federal Reserve's target for several more months.
Budgetary and monetary policy
- The 'Big Beautiful Bill', which mainly extends the expiring tax cuts from Trump's previous term, is expected to provide a limited boost to growth. Meanwhile, the US government shutdown has been lifted for the time being.
- China continues to regularly support its flagging economy with new policy measures. In the euro area, the major investments announced for defence and infrastructure are gradually taking more concrete shape, although it looks as if their impact won’t be felt fully until 2026-27.
- The ECB kept its deposit rate unchanged at 2% in September, with further movements dependent on economic data. Our economists do not expect the Bank to cut interest rates further next year.
- The Fed lowered rates as expected, although the dot plot only shows one incremental cut in 2026. US President Donald Trump is expected to name Chairman Powell's successor early next year.
Bond markets
- Despite weaker growth, falling inflation and lower key rates, bond yields remain at somewhat higher levels in both the US and Europe.
- The fiscal about-turn by the new German government, lifting the ‘debt brake’ and allocating a generous budget to relaunch policy and defence spending, explains the higher yields in Europe.
- The -once again- volatile political situation in France caused interest rates to rise a little further.
- In recent weeks, interest rates have normalised and stabilised somewhat.
Stock markets
- Stock markets have again climbed to new historic highs in recent weeks.
- Overall, stock market performance is solid. Profit expectations are strong for both the fourth quarter as well as next year which explains the strong performance.
- Investments by governments and in AI infrastructure fuel profits. Lower geopolitical tensions could lead to lower costs through fuel prices.
Risks
- On the financial markets, the conflict in the Middle East has somewhat taken a back seat in recent weeks, but there is nothing to prevent it from flaring up again.
- In Ukraine, an agreement could be on the table. Investors haven’t forgotten concerns about private lending following several bankruptcies, but the markets are less concerned about these developments for the time being and sentiment may turn quickly.
As expected, the Fed lowered the policy rate, although it expects less cuts in 2026 than the market. Additionally, the Fed intervenes in the short term markets to alleviate pressure.
Siegfried Top, Senior Strategist at KBC Asset Management
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