ESMA has released its second risk monitoring report for 2026, highlighting key risks and vulnerabilities in EU financial markets. Despite market resilience, stretched technology valuations and geopolitical tensions are creating concerns. Persistent inflation and weaker economic growth, coupled with heightened market volatility, are testing this resilience. Strong performance in technology and AI sectors has fueled investor optimism and market valuations. However, this disconnect between economic conditions and market valuations increases the risk of sudden corrections. Emerging threats from frontier AI to market infrastructures and key players also require attention. ESMA's Chair, Verena Ross, urges investors to remain vigilant and prepared for sharp market corrections. The report analyzes market developments in securities, crypto-assets, infrastructures, asset management, and consumer behavior during the first half of 2026. It also examines structural developments in market-based finance, sustainable finance, and financial innovation.