Federated Hermes: Weekly Markets Wrap Up 4 June 2026

June 4, 2026

Gary Skedge, Head of UK Liquidity Strategies at Federated Hermes

Eurozone Outlook Darkens

The eurozone is facing deepening economic woes from the conflict in the Middle East as surging energy prices choke growth. The bloc’s economy expanded by only 0.1% in the first quarter, while inflation rose to three percent in April, its highest level since September 2023.

At the start of the year, the European Commission forecast EU GDP to grow 1.4% in 2026, with inflation rising little above two percent. But in May, it significantly changed those projections, with GDP increasing only 1.1% and inflation soaring to 3.1% and also expecting the unemployment rate to rise.

At its April meeting, the European Central Bank (ECB) kept its deposit rate unchanged at two percent, stressing that upside risks to inflation and downside risks to growth had both intensified. Markets have since pushed back expectations of near-term easing.

The near-term outlook still depends heavily on geopolitics. If the US and Iran move toward a resolution and the Strait of Hormuz reopens fully, the latest inflation spike may prove temporary, allowing the ECB to look through part of the shock. If not, and energy prices remain high, the drag on global growth will deepen, with Europe likely to be among the most exposed regions.

Martin Todd, Head of Sustainable & Impact Investing at Federated Hermes

AI spending: where will the returns emerge?

Alphabet’s plans to raise significant public equity to fund its AI buildout reinforces the view that AI spend is entering a more capital-intensive phase, with markets increasingly being asked to support the industrial AI build out.

This past year we have already seen the AI opportunity set broaden beyond the hyper scalers themselves, with more of the value shifting to the infrastructure layer. That includes not just semiconductors, but also the physical infrastructure, power generation and industrial supply chains required to support AI at scale. As spending continues to accelerate, those parts of the value chain are seeing capacity constraints emerge, which is creating pockets of pricing power.

The scale of planned AI related investment suggests to us that companies remain confident in the long-term returns on offer. But in the nearer term, beneficiaries are likely to be those enabling the buildout rather than those funding it. As capital flows through the system, the number of beneficiaries should continue to widen. This could materialise directly through infrastructure demand, and indirectly as improved AI capabilities begin to drive productivity and revenue growth across the broader economy. The potential IPO of companies such as Anthropic also highlights how public markets are now both funding the buildout and being asked to price its eventual returns.

Jordan Stuart, Investment Director at Federated Hermes

IPO Pipeline Powers Next Tech Cycle

The 2026 IPO market is shaping up to be no different with 70 IPOs pricing year to date, raising around $30 billion in the US alone, and expected to surpass last year’s numbers meaningfully.

A significant portion of today’s pipeline stems from the surge in private and venture capital during the COVID period. Startups and emerging technology companies raised substantial capital at that time, enabling them to accelerate their business models. Roughly five years on, and many of these companies are now approaching public markets.

What’s notable is that these firms are not merely incremental players but are increasingly positioned to leapfrog even dominant incumbents forward. Whether through more advanced processing capabilities, more efficient data centre utilization, or breakthroughs in large language models, they are pushing the technological frontier forward.

If execution is strong, some of these new entrants could effectively relegate current incumbents to “utility-like” roles within the next generation of the tech ecosystem. We are already seeing pressure build: legacy software companies that once maintained strong control over proprietary corporate data are now facing erosion in their competitive moats. Lower switching costs, improved interoperability, and more flexible coding frameworks that are placing these business models under direct and sustained pressure.

Looking ahead, we expect the next wave of technology IPOs to be well-capitalized, highly competitive, and potentially disruptive.