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1. Sentiment is driving the market, rather than data, and the mood is euphoric.

“We think the pain trade is up from here,” say Goldman Sachs flow specialists including Gail Hafif.

They add that balanced positioning by the institutional community, fund flows, the persistent retail bid, among other factors, allow a gradual move higher.

Economic readings are not screaming that a recession is coming, even if job data is pointing to a slowdown. The Federal Reserve has resumed rate cuts and plenty more easing is expected. That’s also keeping investors confident that liquidity will flow and boosting bullish sentiment. Importantly, bond yields and volatility have receded, helping equities.

Below: The technical indicator RSI is again overbought but has been for almost 6 months.

2. AI investment bubble inflated by the innovator’s dilemma.

Consultancy Bain & Company’s latest Global Technology Report estimates that some $500 billion a year will be spent in the United States over the rest of the decade.

A rapid payback is necessary because the expensive graphics processors housed in the data centres have a short lifespan. Morgan Stanley reckons some $3 trillion in additional AI revenue is required by 2030 if they are to earn their cost of capital. Yet $3 trillion is equivalent to 70 times Citi’s estimate of the revenue that AI will generate this year.

Tech leaders claim that AI is going to usher in a new golden age, boosting productivity and profits. But there’s little evidence so far to justify the hype. A recent report from the Massachusetts Institute of Technology found that 95% of businesses that had integrated AI into their operations had yet to see any return on their investment. Of the nine sectors examined in the study only media and technology had experienced major structural changes. It’s not for want of effort, as the report states: “adoption is high, but disruption is low.”

So why do companies continue to sink trillions of dollars into highly speculative and possibly unprofitable investments? Cloud computing firms face a classic prisoner’s dilemma: if one operator fails to invest, it risks losing business to competitors which forge ahead. European mobile phone companies faced the same quandary during the telecom boom of the late 1990s and ended up massively overpaying for 3G spectrum auctioned by the United Kingdom and other countries.

3. Investors also face a (prisoner’s) dilemma.

AI is generating extraordinary stock market returns and the U.S. market is more concentrated than ever in a handful of AI-related names.

So, investors have good reasons to adopt a conservative stance. Valuations for AI-related businesses are elevated. Around 35% of the market capitalisation of the S&P 500 Index trades at more than 10 times sales.

But if they don’t participate in the bubble they risk extreme underperformance and a possible loss of business. Yet if they run with the herd, they face potentially large losses at some uncertain future date. “At least for active investors it’s a dilemma,” says Marathon’s Carter, “for passive they’re just prisoners.”

4. Trump announced 100% tariffs on imports of branded drugs into the U.S. but with exemptions for companies who are building big US factories.

Since Trump’s “Liberation Day” global drugmakers have been at pains to show they are moving jobs and factories to the U.S. In April, Swiss pharma group Roche announced a $50 billion investment plan, which was matched by Britain’s AstraZeneca in July. Earlier this month, fellow UK drugmaker GSK GSK.L said it would invest $30 billion over the next five years.

But this hasn’t exactly sparked a relief rally. Most of the main pharma stocks have been trading at lower valuations since the threat of pharma tariffs. AstraZeneca, the perennial bellwether of European pharma growth, was trading at over 12 times its expected EBITDA in April but now only manages 11 times. It reflects lingering concern that the sector could yet get hit with more volatile Trump announcements.

5. What about Sanofi?

The majority of pharma groups will only be subject to the specific tariffs of the country in which they make drugs and ship to the U.S. In that scenario, French drugmaker Sanofi will only get a 15% charge as part of the European tariff agreement with the U.S.

JPMorgan sees a positive risk reward for the stock in the coming months. “We believe Sanofi is undervalued. With Sanofi trading at a 20% discount to the sector despite a Sales & EPS 2025-2030 CAGR of 5% and 7% which is 50% above the sector for EPS, we see current levels as a good entry point into the stock.”

Below and point 4: Sanofi is down 16% year-to-date and 30% since March.

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