Investor update: October 2026

At a glance

• In September, markets fought to balance two countervailing forces: optimism surrounding the artificial intelligence (AI) theme, and worries over the war in the Middle East, that is stoking expectations of higher inflation.
• The tech sector supported the US equity market in September, but a number of other major equity indices saw modest declines.
• Investor concern over inflation persisted to weigh on key government bonds.
• We are still positive on the outlook for equities, but recently slightly trimmed exposure. We are seeking opportunities to redeploy the cash proceeds, when appropriate.

Equity markets struggled for direction in September

Some parts of the US equity market posted gains over the month, supported by the tech sector. However, many other major equity indices were weaker over the month, including the UK.

Financial markets have tussled with two forces pulling in opposite directions:

1. Continued enthusiasm around AI as a long-term investment theme
2. Persistent concern linked to conflict in the Middle East

The dominant ‘mega theme’ in equities remains AI. Over the summer there were wobbles, with notable concerns over ‘crowded’ trades, especially in parts of the Asian market, prompting some sharp sell-offs. However, these worries have since receded and technology stocks have largely recovered.

At the same time, developments in the Middle East continue to unsettle investors, and markets are watching the region closely. Oil supply disruption has caused oil prices to climb, with the far-reaching implications a cloud on an otherwise bright horizon.

Bonds markets preoccupied with inflation uncertainty

Bond markets have been in focus for much of the year. Yields have risen for many major government bonds, as investors have assessed the inflationary potential of high energy prices and possible central bank policy response. Bond prices and yields move inversely.

Those concerns continued to weigh through September. The closely-watched US 10-year Treasury yield rose to cross the psychologically-important 5% mark during the month. The 5% yield threshold on the US 10-year Treasury is seen as a potential trigger for equity market upset. That the threshold was passed with comparatively little incident was interpreted by the investment team as a positive indicator of investor confidence.

The US Federal Reserve (Fed) also increased its key policy rate from 3.75% to 4% over the month. The move offered some much-needed reassurance to bond markets that the Fed remains resolved to tackle inflation according to its remit.

Global economy: US still in spotlight, Middle East sits in the background

In economic terms, the US remains crucial to market direction as we enter the last quarter of 2026. US economic data, the influence of US equity markets, the scale of AI-related spending by US mega-cap companies, the global ripple effects of Fed decisions, and the importance of the dollar as reserve currency, all keep the US front-and-center for market sentiment.

In the UK, the economy remains more fragile. Recent improvements, particularly on unemployment, are encouraging. Survey data on business activity (so-called ‘PMI’ numbers) also offer some reasons to be cheerful. However, these shorter-term improvements will need to turn into more sustainable trends before they amount to a genuine reversal of fortunes.

Portfolio positioning: less equity risk, retaining cash for agility

The investment team reduced equity risk slightly in early August, and retained some of the cash proceeds through September. The team is still optimistic about stocks, even though momentum was flatter in September. While still positioned to benefit from any further AI-driven gains, the team has the flexibility to deploy cash when appropriate. The relative underweight in government bonds has helped insulate portfolios from the price impact of rising yields seen through the year so far.

About this update: This update was recorded on 25 September 2026. All figures, unless otherwise stated, relate to September 2026. Data to the 24th of the month.

Source: MacroBond, J.P. Morgan Personal Investing and Bloomberg.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio can go down or up and you may get back less than you invest. Past performance and forecasts are not reliable indicators of future performance. We do not provide investment advice in this article. Always do your own research.