Equity markets facing increased volatility but resilience is key
The AI-heavy hardware cohort sold off sharply with the Korean semiconductor names that serve as a proxy for the picks-and-shovels AI trade down 16.7% intramonth, with peak drawdowns touching 31%. But 62% of the FTSE All-World ex-hardware universe ended the month above their 50-day moving averages. Only 16% of hardware stocks could say the same.
The concentration of market returns among a handful of AI mega-caps that characterized 2024 and much of 2025 is giving way to broader participation. Financials, in particular, are identified in the report as a sector positioned to benefit from a higher-volatility, higher-rate environment — a dynamic the firm expects to persist.
Valuations, the report notes, have also become more reasonable. The FTSE All-World’s forward price-to-earnings multiple has moved from the 90th percentile at the start of 2026 to the 57th percentile by end-July, a shift FTSE Russell characterizes as moving from “extremely expensive” to “slightly rich.” Three-month earnings revisions across developed markets came in at +5.5%, with Japan at +6.2% and developed Asia Pacific ex-Japan seeing upgrades of approximately 19% over 12 months — the strongest revision cycle in the report’s coverage universe.
The Fed shift that changes everything
The single development FTSE Russell flags most prominently for market structure is the arrival of Kevin Warsh as Federal Reserve Chair.
In his first FOMC meeting, Warsh ended the practice of forward guidance and adopted what the report describes as a tougher stance on inflation. Fed Funds futures, as of the report’s data date, are pricing one to two rate hikes by December 2026. The 30-year US Treasury yield rose to 5.3% in the wake of Warsh’s remarks.
