Global Markets
Note: All quoted equity performance figures are in GBP terms.
The third quarter of 2026 was again shaped by developments in the Middle East and their impact on global energy markets. Disruption to shipping through the Strait of Hormuz, renewed tensions between the US and Iran, and damage to Saudi Arabia’s east-west pipeline kept oil prices volatile. Brent crude rose by around 34% over the quarter, moving from approximately $73 per barrel to briefly above $110 in mid-September, before ending the period at $98.
Trade policy also remained an important market theme. Relations between the US and Canada were unsettled by the prospect of new tariffs and retaliatory measures, while the US and China extended their existing trade truce to allow further negotiations on tariffs, agricultural purchases, financial services and rare-earth metal supplies.
Despite a challenging backdrop, global equities remained resilient with the MSCI World up 1.8% over the quarter. Artificial intelligence continued to dominate equity market sentiment, although performance varied across companies and sectors. Strong earnings and investment in AI infrastructure supported several large technology companies, while concerns about valuations, capital expenditure and the pace of development contributed to periods of volatility. Semiconductor stocks remained particularly sensitive to changes in expectations, although strong results from Nvidia provided reassurance that demand for AI-related hardware remained robust.
US equities made further progress, albeit at a slower pace than in the second quarter. The S&P 500 rose 2.2% while the technology-focused Nasdaq Composite outperformed, supported by continued strength among larger technology companies. Corporate earnings remained generally resilient, including further growth in cloud-computing revenues, although investors remained mindful of the significant investment required to support data centres and broader AI infrastructure.
UK equities also delivered a modest positive return, with the FTSE All-Share rising 2.4%. Energy companies including BP and Shell benefited from higher oil prices, helping the index reach an all-time high in early September. The market weakened later in the quarter as higher borrowing costs and inflation concerns weighed on more domestically focused companies.
Elsewhere, emerging market equities fell marginally over the quarter, falling 0.5%. A rotation from semiconductors towards hyperscalers and software companies saw the earlier strength in South Korea and Taiwan fade in July. Korea, India and the Philippines were among the underperformers, while renewed tensions in the Middle East and inflation concerns also weighed on sentiment.
Beyond the strong performance of the energy sector, the wider commodity market also advanced. Agriculture rose amid concerns over the potential impact of the El Niño weather pattern, while precious metals posted more modest gains, with gold benefiting from its perceived safe-haven status amid concerns around the US dollar.
Equity Styles
Equity style performance shifted during Q3, with value stocks outperforming growth overall. Growth stocks struggled early in the quarter as enthusiasm around AI cooled and some investors took profits following strong previous gains. Growth recovered later in the quarter as company earnings remained supportive, but rising interest rates helped value stocks maintain their relative advantage.
Inflation
Inflation and interest-rate expectations were heavily influenced by rising energy prices, with more than 80% of developed-market central banks raising policy rates over the quarter. In the US, inflation remained above the Federal Reserve’s 2% target, as higher oil prices and producer costs added to concerns that price pressures could remain elevated. The Federal Reserve raised its benchmark rate by 25 basis points in September to 3.75%–4.00% and indicated that further increases remained possible.
In contrast, the Bank of England held its policy rate at 3.75%, despite UK inflation rising from 2.6% in June to 3.1% in August. Elsewhere, the European Central Bank and Bank of Japan both raised interest rates, highlighting the continued challenge facing central banks in bringing inflation under control without placing undue pressure on economic growth.
Fixed Income
Note: All quoted fixed income performance figures are in GBP-hedged terms.
Government bond markets were volatile over the quarter as investors assessed the outlook for inflation, interest rates and government borrowing. Higher energy prices, persistent inflationary pressures and elevated borrowing requirements pushed yields higher across a number of major markets, resulting in losses for bondholders as bond prices fell.
The US 10-year Treasury yield reached its highest closing level since 2007, while UK gilt yields also rose, with 10-year and 30-year yields ending September at 5.4% and 6.0%, respectively, amid concerns over whether monetary policy was sufficiently restrictive. Japanese and German government bond yields also reached multi-year highs.
Credit markets were similarly affected by rising government bond yields. Investment-grade credit delivered negative returns as yields rose and spreads widened modestly, although strong corporate fundamentals helped limit the extent of spread widening. High-yield bonds proved more resilient, supported by higher starting yields, shorter duration, contained default rates and improving corporate fundamentals.
If you would like to discuss how recent market developments may affect your portfolio or investment strategy, please contact your adviser.
