Summary
- Global markets rose 0.9% in sterling terms over September, with large technology companies in the US and Asia leading the way as enthusiasm for AI products continue.
- Other equity markets didn’t fare as well. Higher bond yields seen across the month led to higher borrowing costs for businesses which put downwards pressure on their share prices.
- Global bonds fell -1.7%, fears around widescale energy disruptions reared their heads once again as Saudi Arabia noted attacks from the Houthis on its energy facilities.
September was a reminder that markets rarely move in a straight line. Investors spent much of the month wrestling with a familiar problem: stronger economic growth on one side and stubborn inflation on the other.
Energy prices were at the centre of it all. Brent crude oil briefly rose above $108 per barrel during the month and is now up around 74% this year. Rising energy costs raised concerns that inflation could prove more persistent than many had hoped, forcing central banks to keep interest rates higher for longer.
That quickly brought central banks back into focus. The European Central Bank raised interest rates by 0.25% to 2.5%, while the Federal Reserve increased rates to 3.75%-4.00% and warned that further rate increases may still be required. The higher interest rate environment pushed the yield on the US 10-year Treasury Bond above 5.2%, its highest level since 2007. Meanwhile, the Bank of Japan raised rates to 1.25%, continuing its shift away from ultra-low interest rate policy. The Bank of England left rates unchanged at 3.75%, but stressed that higher energy prices could still keep inflation pressures elevated.
Despite higher interest rates, the global economy has so far remained resilient. UK GDP rose 0.5% quarter-on-quarter in Q2 2026. Across Europe, business activity surveys came in better than expected and Germany's growth outlook improved. In the US, economic activity remained robust despite significantly higher borrowing costs. Much of the data pointed towards an economy that was still growing at a decent pace.
Artificial intelligence remained one of the most powerful themes in markets. Oracle reported triple-digit growth in cloud infrastructure demand, while Meta launched Muse AI and OpenAI unveiled ChatGPT 6. Companies continue to spend heavily on data centres, semiconductors and computing power, creating strong demand for the businesses supplying the technology behind the AI revolution.
Japan was one of the standout performers, returning 3.7% in sterling terms during September. Investors continued to be attracted by strong corporate earnings, improving shareholder returns and Japan's growing importance in global technology supply chains. Demand for semiconductors, factory automation and AI-related infrastructure remained supportive.
The US S&P 500 market also delivered positive returns, gaining 1.7% in sterling terms. Higher bond yields would normally be a headwind for equities, but strong economic data and continued enthusiasm for artificial intelligence more than offset those concerns. Technology led the way, with the NASDAQ 100 rising 5.4% over the month as investors continued to back companies expected to benefit from AI adoption.
Asian equities returned 0.8%, supported by resilient technology exports from economies such as Taiwan and South Korea. These countries sit at the heart of the global semiconductor industry and continue to benefit from growing demand for advanced chips and computing power.
European equities fell -2.9% as investors worried about the impact of higher energy prices and rising bond yields. While economic data was generally better than expected, markets remained focused on whether higher borrowing costs could eventually slow growth across the region.
UK equities fell -1.9% over the month. The market received support from higher oil prices through its exposure to energy companies, but this was outweighed by concerns around interest rates.
China remained one of the weakest major regions, falling -2.6% in sterling terms. Manufacturing and exports showed some resilience, but consumer spending, property activity and investment remained subdued. Investors continue to wait for evidence that economic growth is becoming broader and more sustainable before becoming more positive on the market.
Bond investors also faced a difficult month. UK gilts fell -1.2%, as investors reassessed how quickly inflation would return to target. Stronger economic growth and higher energy prices reduced expectations for future interest-rate cuts. Since bond prices move in the opposite direction to yields, the rise in yields resulted in negative returns for existing gilt holders. While disappointing in the short term, higher gilt yields are gradually improving the income opportunity available to long-term investors.
Towards the end of the month, sentiment improved. The United Nations General Assembly became a focal point for markets, with diplomatic discussions offering some hope that geopolitical tensions could begin to ease. Signs of progress in US-Iran discussions helped reduce concerns over further disruption to energy supplies. Investors also welcomed increased diplomatic engagement around Russia-Ukraine and plans for a future meeting between Donald Trump and Xi Jinping. Oil prices eased from their highs and markets became more comfortable with the outlook as fears of an immediate escalation faded.
Overall, September was a month of competing forces. Higher energy prices and rising bond yields created periods of volatility, but resilient economic growth, healthy corporate earnings and continued investment in artificial intelligence helped support equity markets. The strongest returns came from regions linked closely to technology and innovation, particularly Japan and the United States, while Europe and China struggled under the weight of higher rates and weaker domestic growth.
We remain constructive on equities over the medium term. While uncertainty surrounding geopolitics, inflation and government policy is likely to persist, markets have generally shown resilience in the face of ongoing challenges. Company profits, economic growth and long-term themes such as continued investment in technology and artificial intelligence remain a tailwind. However, periods of volatility should be expected as investors continue to assess the outlook for inflation, interest rates and global economic growth.
