- Global stock markets remain near record highs despite geopolitical risks
- Private credit has surged to around £2 trillion globally over two decades
- Bank of England warns multiple risks could trigger a market correction
A senior voice at the Bank of England has raised concerns that global stock markets may be running ahead of reality, warning that risks are building even as prices remain near record highs. The remarks come at a time when stock market valuations, AI-driven optimism and geopolitical tensions are all colliding, raising fresh questions about whether a correction could be on the horizon.
Sarah Breeden, the central bank’s deputy governor for financial stability, said markets appear to be overlooking a growing list of risks. “There’s a lot of risk out there and yet asset prices are at all-time highs. We expect there will be an adjustment at some point,” she reportedly said in an interview.
Her comments stand out, not just for the warning itself, but because central bank officials rarely speak so directly about potential market falls.
Markets are rising, but so are the risks
Global equities have shown surprising resilience in recent months. Even after the escalation of tensions involving the US, Israel and Iran in late February, markets have largely recovered. Major US indices such as the S&P 500 and Nasdaq have reached fresh highs, while broader global indices tracking developed markets are up more than 5 per cent so far this year.
This is where the concern begins to build. The backdrop is far from stable. Energy prices have been volatile, geopolitical risks remain unresolved, and economic uncertainty continues to linger. Yet markets have continued to climb, driven in part by strong corporate earnings and optimism around AI-led growth.
Breeden pointed to a broader worry. It is not just one risk, but the possibility of several risks hitting at the same time. She reportedly said that what keeps her awake is the chance of “a number of risks crystallising at the same time”, including a macroeconomic shock, falling confidence in private credit and a reset in AI-driven valuations.
Private credit is one area drawing particular attention. The market has grown rapidly over the past 15 to 20 years, expanding to roughly £2 trillion globally. Unlike traditional banking systems, this segment has not been tested at such scale during a major downturn. Breeden warned that the concern is not a banking-led credit crunch, but a “private credit crunch”, reportedly said in the same interview.
Optimism holds, but doubts are creeping in
Despite these warnings, not everyone is convinced a correction is imminent. Some investors continue to focus on strong earnings, healthy profit margins and the longer-term impact of AI on productivity and growth.
Mark Haefele of UBS Global Wealth Management, reportedly said in a client note that while higher energy costs present a risk, the broader economic backdrop remains supportive for equities, provided there is no prolonged shock.
Others have taken a more cautious middle ground. Iain Barnes of Netwealth reportedly said that markets are aware of potential risks but are placing more weight on current fundamentals rather than uncertain geopolitical outcomes. He also pointed out that predicting the timing of a correction is notoriously difficult.
That view is echoed by historical precedent. Former US Federal Reserve chair Alan Greenspan warned about “irrational exuberance” years before the dot-com bubble eventually burst, a reminder that markets can stay elevated longer than expected.
There is also a counter-argument emerging around AI. Nigel Green of deVere Group reportedly said that traditional valuation frameworks may not fully apply in a world shaped by rapid technological change. According to him, AI is driving a once-in-a-generation shift in productivity and earnings potential, making comparisons with past bubbles less straightforward.
For now, markets appear to be balancing between optimism and caution. Earnings remain strong, and investor sentiment has held up. At the same time, the list of risks is growing, from geopolitical tensions to structural concerns in credit markets.
The key question is not whether risks exist, but when and how they begin to show up in asset prices. As Breeden’s comments suggest, the adjustment may not be immediate, but the possibility is clearly on the radar.
