An unprecedented economic cycle, driven by two opposing forces, is shaping the investment landscape of the last quarter of 2026. This is the assessment of Piraeus Bank in its quarterly report "Investment Strategy".
The first force is prolonged supply disruptions: the conflict in the Persian Gulf, tariffs, reduced migration, and export restrictions. The second is the unprecedented investments in artificial intelligence infrastructure.
As noted by the Head of Economic Analysis Elias Lekkos, these two factors jointly push inflation upward, yet they are beyond the control of the Fed and the ECB. Thus, the burden of adjustment falls disproportionately on households, construction, and small and medium-sized enterprises. In September, the Fed, the ECB, and the Bank of Japan raised interest rates by 25 bps. The Fed rate now stands at 3.75%-4.00% and the ECB deposit rate at 2.50%.
In equities, the bank maintains a neutral stance on the US. S&P 500 earnings are estimated to increase by 33% in 2026 and 15% in 2027, while the P/E ratio has declined from 23 to about 19 times.
However, the 10-year yield at 5.2%, an 18-year high, and the midterm elections are reasons for caution. Energy is upgraded to positive, as a hedge against geopolitical uncertainty. Healthcare and Banks remain positive, while Small Caps and Utilities are downgraded to neutral.
For the Eurozone and Japan, the view remains mildly negative. In Europe, technology is upgraded to mildly positive, while Real Estate, Utilities, and Communications are downgraded to neutral. Emerging markets are maintained at neutral weighting, despite the estimated 40% increase in earnings this year.
In bonds, the stance on US government bonds remains neutral, while for Eurozone government bonds it is mildly positive. In corporates, the bank prefers European IG and is negative on High Yield on both sides of the Atlantic. In foreign exchange, the target for EUR/USD is revised to 1.12 from 1.15 and for USD/JPY is set at 152. For gold and oil, the view is neutral.
Of particular interest is the productivity data: in the second quarter, sectors with high exposure to AI in the US recorded an increase of 7.4%, versus 0.9% for the rest.
There are two risks to the scenario. The first is a crack in the sustainability of AI investments, which would halt the momentum of the US economy. The second is a new surge in energy prices, which would drive interest rates much higher than markets currently price in, the bank notes.