The ECB is warning that global markets are running on thin ice as Big Tech swells to 31.1% of the S&P 500’s total value while producing only 20.8% of the index’s earnings, a mismatch that is now driving alarm inside Europe’s central bank, according to its Financial Stability Review released Wednesday.

The bank said financial stability risks across the euro area are now elevated, with asset prices stretched, sudden selloffs possible, and weak government finances in parts of Europe ready to test investor confidence.

The report said market mood can turn fast if growth weakens or if news around AI adoption disappoints. It added that concern over high public debt in several advanced economies could strain global bond markets, push capital across borders at speed, and hit currencies without warning.

The ECB said these risks now sit next to record market valuations, rising debt piles, and unresolved trade pressure already flagged by central bankers and regulators across the world.

ECB tracks AI stock surge and rising market concentration

The ECB said the AI-driven stock rally has pulled sharp attention from officials worried about how fast prices could drop if sentiment turns. It said investors have started to question how large spending on the technology will truly become.

That doubt has already weighed on stocks, with the S&P 500 now heading for its first monthly decline since April.

The ECB said persistently high valuations and growing market concentration raise the chance of sudden price breaks.Luis de Guindos, the ECB vice president, said the current setup is not the same as the tech crash of the late 1990s.

“This is not identical to the dot-com bubble,” Luis said at a press briefing. He said firms today have “very clear business plans” and high revenues. “You can have doubts about the valuations, but to say that there is a bubble, that wouldn’t depict the real perspective that we have on that,” he said.

The report also said that liquidity gaps in open-ended funds, heavy leverage in some hedge funds, and limited clarity inside private markets could add force to any future market stress.

On government debt, the ECB said any repricing of sovereign risk would now be harder to absorb than in the past due to a slow shift in the investor base toward price‑sensitive buyers.

The ECB said recent risk focus has also turned toward France, where fiscal trends are weakening. The euro zone’s second‑largest economy is struggling to control its budget deficit and debt load, the report said.

The bank also addressed trade policy. It said that while some agreements are in place, worries around the future and the longer‑term economic and financial impact of tariffs continue to shape financial stability across the euro area.

Luis said measures of trade uncertainty have fallen since April. “Measures of trade policy‑uncertainty have eased notably from their April highs,” he said. “But uncertainty continues to linger, with potential for renewed spikes.”

Crypto and stock markets rank among top short-term risk threats

The ECB made clear that crypto and stock markets now sit near the top of short‑term financial stability risks.

Alvaro Santos Pereira, a member of the ECB Governing Council and the governor of the Bank of Portugal, said a sharp drop in financial markets and crypto would rank among the most serious near‑term threats.

He said central banks must keep room to act if another shock hits. “Price stability is a priority,” Alvaro said. “Should there be another shock or crisis, central banks must have the buffer to act decidedly to reduce interest rates and help the economy,” he said, adding that “monetary policy is appropriate for the moment.”

His comments came after a rough week for markets. The S&P 500 is nearing its steepest fall since April. Treasury yields dropped. Crypto slid with other risk assets. Markets found some balance on Friday after a Federal Reserve official said another rate cut remains possible.

Speaking at the CNN Portugal International Summit in Alcobaça, Alvaro said the overvaluation of US equities and crypto now poses a major near‑term threat alongside trade tensions and geopolitical uncertainty.

“The question is whether there could eventually be a correction in those financial markets,” he said, pointing to charts tracking the rise of US stocks and cryptocurrencies. “We must keep this short‑term risk in mind.”

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