Commentary for September 2026

Market Overview

September was another volatile month for global markets, with the macroeconomic backdrop dominated by events in the Middle East. Despite rising bond yields, hawkish central banks and energy-price risks, equities continued to advance, rising 0.9% in sterling terms. Japan led with a gain of 3.6%, followed by Asia at 2.3%, the US at 1.6% and emerging markets at 1.5%. Elsewhere, the UK and Europe declined by 2.0% and 2.6%, respectively.

The latest earnings season showed that companies have continued to prosper despite higher energy prices and borrowing costs. While mega-cap technology stocks remained in the vanguard, gains were broad-based, with positive numbers from the energy, financial and industrial sectors. Strength also extended beyond the US, where elevated spending on defence, energy security, infrastructure and AI supported share prices.

The artificial intelligence boom came under renewed scrutiny when Anthropic’s chief executive argued that the company and others should slow model development to ensure safe deployment, a call quickly endorsed by OpenAI. This raised concerns about the outlook for AI capital spending and high stock valuations. At the same time, pressure to regulate the pace of data-centre deployment is growing. The issue has become political in the US, as the industry may add further upward pressure to energy costs.

Concerns about disruption to Saudi Arabian and Russian energy infrastructure, together with uncertainty around key Middle Eastern shipping routes, pushed Brent crude oil above $100 a barrel. European natural-gas prices reached their highest level since 2022. The stalemate between the US and Iran continued, with ongoing obstruction in the Strait of Hormuz and Houthi rebels now moving on the Bab al-Mandab Strait. The G7 nations announced plans to release 100 million barrels from emergency oil and diesel stocks amid mounting pressure from the Trump administration to bring soaring fuel prices under control ahead of the US midterm elections in November.

For central bankers, this was an unwelcome development, threatening to keep inflation above target for longer. Fears of rising prices, combined with stronger US economic data, led to a further repricing of interest-rate expectations. The US 10-year Treasury yield, a key benchmark in global finance, broke above 5% for the first time since 2007. Yields on UK gilts and German Bunds also reached their highest levels since the financial crisis. However, French government bonds came under pressure not seen since the eurozone sovereign-debt crisis of 2011, with the spread between French and German 10-year yields widening to 141 basis points. After years of overspending, France has emerged as one of Europe’s weakest links. A Wall Street Journal article noted that higher rates mean the cost of servicing French debt is expected to climb by 59% by 2030. Instability is likely to persist ahead of next spring’s presidential election, in which candidates from both the hard left and the hard right appear to have a strong chance. However, the ECB is unlikely to wait until conditions deteriorate that far before taking action this time.

The month’s main economic event came when the US Federal Reserve raised interest rates by 0.25 percentage points for the first time since 2023. While this move was widely expected, the bigger story was the accompanying warning that inflation, which accelerated to 3.7% in September, remained a concern and that further tightening remained likely. Markets priced in another hike before year-end and two more in 2027.

At the same time, US economic data continued to show remarkable resilience. Retail sales rose by 1.2%, comfortably exceeding expectations, while jobless claims fell to just 196,000. The world’s largest economy continued to grow strongly despite higher borrowing costs. The Atlanta Fed’s GDPNow tracker estimated annualised growth of 5% in the third quarter, fuelled by fiscal spending, business investment and interest rates close to zero after adjusting for inflation. These figures reinforced the view that further policy tightening was needed.

Central banks elsewhere also remained focused on inflation rather than growth. The ECB and the Bank of Japan joined the Federal Reserve in raising rates by 0.25 percentage points. However, the Bank of England left rates unchanged at 3.75%, despite inflation rising to 3.1% in August; three members nevertheless voted for a hike. Investors are now pricing in four rate rises over the next 12 months, probably an overreaction given that UK economic growth slowed to just 0.1% in August, down sharply from 0.5% in July.

 

Performance Update

We are pleased to share that our standard client portfolios have had an excellent year in both absolute and relative terms, having beaten their respective benchmarks by a significant margin. In doing so, they have achieved first quartile performance over all the major time periods of one, three, five and ten years.

Excess returns have been driven by three factors: the decision to overweight equities relative to bonds; the decision, within equities, to underweight the US in favour of Japan, Asia and emerging markets; and the additional holding in the Guinness Global Energy fund, which has captured the strong performance of oil and gas stocks this year.

 

Looking Forward

There has been an unusual combination in markets over the summer. Equity markets have continued to deliver solid returns, with many markets recording new highs. Meanwhile, government bonds have fallen as yields have continued their global march higher, in some cases reaching levels not seen for many years.

There are good reasons behind both. Fiscal policy is too loose across developed nations. This is creating excess demand that the supply capacity of the global economy cannot currently meet. Excessive spending, coupled with the AI investment boom, is leading to stronger economic growth in nominal terms, which is great news for earnings and therefore equities.

In bond markets, however, investors are contending with the negative consequences of these policies: persistent inflation risks and a substantial increase in debt. The era of artificially low rates is over, but governments haven’t yet got the memo. Meanwhile, bond markets are starting to demand a real return for financing deficits. If policymakers desire lower yields, they will need to start balancing the books. Right now, the appetite for this appears limited, which means that the current environment of higher rates is likely to persist. In the short term, however, the global bond market sell-off is starting to look overdone, and a countertrend rally is quite likely.

The UK economy has proved far more resilient than many feared in early 2026, but equities have once again been held back by uncertainties surrounding the Autumn Budget. Markets are also pricing in the most aggressive forecasts for higher interest rates over the next twelve months. In both cases, the current level of concern looks overdone. Any improvement in sentiment will likely have a disproportionate impact on the share prices of small- and medium-sized companies, which are back trading at a record discount to the broader market. So long as the markets fail to price these businesses appropriately, we are likely to continue to see elevated takeover activity as strategic buyers take advantage of the valuations on offer.

 

Our Strategy

Against this backdrop, the outlook for equities remains constructive, albeit with a wider range of potential outcomes. Our client portfolios remain overweight equities and have continued to benefit strongly from market strength. They have also been adapted to navigate the risk of higher inflation and interest rates.

Looking ahead, markets are likely to remain sensitive to both energy-driven inflation risks and the sustainability of AI-related earnings. These risks call for a portfolio with different diversifiers. We favour regions outside the US with cheaper valuations, including Japan, Asia and emerging markets, along with the UK. In contrast, we are underweight fixed income given the headwinds of elevated inflation and deteriorating fiscal positions of governments across the West. Having said this, bonds are starting to offer value at today’s higher yields and can provide meaningful income and protection when economic growth weakens. We are watching this space carefully but continue to favour shorter-duration and index-linked bonds for now.

Real assets remain an important diversifier, as they tend to fare much better in an environment of elevated inflation and geopolitical uncertainty. Our standard client portfolios continue to own gold, commodities and infrastructure, where return drivers differ from those of conventional equity and bond portfolios.

Although different commodities have led at different times, the asset class has performed strongly overall. Over the past five years, the sector has been the top performer, beating even the technology sector. Gold has been the early leader, but other areas such as energy have taken up the running this year. We continue to maintain exposure to mining and energy stocks. Gold miners trade at a lower valuation than in 2018 despite generating an unprecedented level of free cash flow. Energy stocks look even cheaper, with record dividend yields, while industrial metal stocks continue to benefit from supply constraints.

UK equities offer genuine diversification because of their unique sector make-up. The market is home to many world class companies that trade at a meaningful valuation discount to international peers. Earnings are forecast to grow by a respectable 19% in 2026, while M&A activity has continued to rise as buyers take advantage of the opportunity to snap up high quality global franchises at unjustifiably low valuations. For example, the average price-to-earnings multiple for our core position in the Artemis UK Select fund is below ten times, with a 3.3% and growing yield.

Emerging markets also trade at a significant discount to developed market peers, despite having the strongest outlook for earnings growth. Our core emerging markets fund is trading at a multiple of seven times earnings. We expect this valuation gap to narrow over time as investors recognise the supportive structural trends already in place and as these feed through to corporate performance. Emerging market equity funds attracted nearly $7 billion of net inflows in the first half of 2026, the strongest period on record and a sharp reversal from 2025’s outflows.

Overall, we continue to manage investments in a manner that allows us to capture the upside in financial markets while effectively controlling risk to dampen volatility and smooth the path of returns.