Ongoing geopolitical and economic vulnerabilities masked by strong investor optimism

The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, published today its second risk monitoring report of 2026, setting out the main risks and vulnerabilities in EU financial markets. ESMA finds that, while markets have remained resilient, stretched technology valuations and heightened geopolitical tensions are testing this resilience, in a climate of persistent inflation and weaker economic growth. Despite heightened market volatility and event-driven uncertainty, strong performance in technology and AI-related sectors has been helping to sustain fast recovery of investor optimism and financial markets valuations.  This resilience should not be mistaken as an absence of vulnerabilities. The disconnect between deteriorating macro-financial conditions and upbeat market valuation increases the risk of sudden market corrections, should economic risks materialise or investor sentiment shift abruptly. At the same time, rapidly emerging threats to market infrastructures and key market players, such as those linked to frontier AI, should not be overlooked. Beyond these risk drivers, ESMA’s report sets out market developments an...