The global credit landscape is entering the second half of 2026 facing heightened risks from a potential artificial intelligence (AI)-driven market correction and renewed geopolitical tensions in the Middle East, according to Fitch Ratings.
In its latest Global Risk Outlook, Fitch said while global credit conditions have remained broadly resilient, investors are increasingly confronting a complex mix of financial, geopolitical and macroeconomic risks that could weigh on corporate funding, sovereign finances and capital markets.
The ratings agency identified two immediate concerns: the possibility that investor enthusiasm surrounding AI could evolve into a broader market correction, and the risk of further escalation in the US-Iran conflict despite earlier diplomatic efforts.
AI investment boom raises bubble concerns
Fitch said the rapid expansion of AI-related investments has become one of the most significant drivers of global financial markets, fuelling record equity valuations, corporate borrowing and capital expenditure.
The report noted that the S&P 500’s cyclically adjusted price-to-earnings ratio has approached levels last seen during the late-1990s dot-com boom, while AI-related bond issuance has surged.
Major technology companies including Amazon, Alphabet, Nvidia, Meta, Oracle and SpaceX collectively raised approximately US$182 billion through investment-grade bond offerings in the first half of 2026, contributing to a 26% year-on-year increase in US corporate bond issuance.
Meanwhile, capital expenditure by the four largest US hyperscale technology firms—Alphabet, Amazon, Meta and Microsoft—is projected to rise by more than 75% to US$700 billion this year.
Fitch estimates that an 18% increase in US information technology capital investment contributed 1.4 percentage points to first-quarter US GDP growth, underscoring AI’s growing influence on the broader economy.
However, the agency warned that uncertainty surrounding future returns from AI investments has increased the risk of a significant market re-evaluation.
“The combination of revenue uncertainty and the extent to which capital markets and economies have become intertwined with the AI story have created a key potential vulnerability for credit,” Fitch said.
While short-term volatility has already emerged in technology stocks, the agency cautioned that a more prolonged correction could tighten financing conditions and spill over into broader economic activity.
Technology disruption creating winners and losers
Fitch said AI adoption is already reshaping industries beyond technology.
While energy and information technology sectors have outperformed in 2026, software companies have experienced a sharp decline, with the sector index falling more than 15%.
The ratings agency also identified customer experience providers, business process outsourcing firms and parts of the media sector as particularly vulnerable, as AI-powered alternatives increasingly disrupt traditional business models.
Middle East conflict remains key geopolitical threat
Fitch also highlighted the ongoing US-Iran conflict as a major source of uncertainty despite the signing of a memorandum of understanding in June that temporarily eased tensions.
The agreement, which extended a 60-day ceasefire and partially reopened shipping through the Strait of Hormuz, reduced the likelihood of the most severe credit stress scenarios earlier anticipated.
However, renewed hostilities in July and restrictions on shipping have once again pushed oil prices higher, reinforcing concerns over prolonged geopolitical instability.
The agency noted that unresolved issues—including Iran’s nuclear programme, sanctions, control of the Strait of Hormuz and broader regional alliances—continue to threaten prospects for a lasting agreement.
Despite the renewed tensions, Fitch said the global economy and credit markets have so far remained relatively resilient, with the impact largely confined to sectors directly exposed to higher energy costs or geopolitical risks.
US consumers showing resilience but slowing
The report also pointed to signs of weakening momentum among US consumers.
Higher energy prices have pushed inflation forecasts upward, with Fitch now expecting US inflation to reach 3.7% by end-2026 before easing below 2.5% by the end of 2027 under its base-case scenario.
The agency’s Consumer Health Pulse index has declined to its 45-year median, reflecting slower real income growth as higher living costs offset gains from strong equity markets.
Fitch said wealthier households continue to benefit from rising stock market valuations, while lower- and middle-income consumers are facing mounting cost-of-living pressures.
The US housing market has also weakened, with elevated mortgage rates and construction costs contributing to softer housing demand.
Fiscal constraints could limit policy response
Another structural concern highlighted by Fitch is the deteriorating fiscal position of major economies.
The agency said rising public debt, driven partly by increased defence spending amid geopolitical tensions, could reduce governments’ ability to respond effectively to future financial shocks.
Recent spikes in government bond yields in countries such as the United Kingdom and France illustrate the potential for fiscal concerns to trigger broader market volatility, it added.
El Niño adds another layer of risk
Beyond financial and geopolitical challenges, Fitch warned that a strong El Niño weather event could further complicate the global credit outlook.
With the US National Oceanic and Atmospheric Administration assigning an 80% probability of a very strong El Niño developing this year, the agency expects heightened risks of droughts, floods and severe storms.
The phenomenon could disrupt agricultural production, increase food prices and pressure government finances, particularly in emerging economies with large food subsidy programmes.
Agribusinesses are already facing higher input costs due to rising fertiliser and diesel prices linked to the Middle East conflict, while hydroelectric utilities in parts of Asia and Australia could face reduced water availability.
Outlook remains cautious
Fitch concluded that although global credit markets have demonstrated resilience, risks are becoming increasingly interconnected.
The agency said a combination of elevated AI-related valuations, persistent geopolitical tensions, slowing consumer momentum, fiscal constraints and climate-related disruptions will require investors and policymakers to remain vigilant as the second half of 2026 unfolds.
