MARKET COMMENTARY – SEPTEMBER 2026

Global equity markets made further progress during August, extending the advance seen earlier in the summer, even as tensions between the US and Iran resurfaced later in the month and unsettled sentiment in the Middle East. Robust corporate earnings and continued confidence in the long-term AI investment cycle helped offset a further bout of volatility in technology and semiconductor shares, while investors turned their attention to the US Federal Reserve Bank’s next interest rate decision in September. Investor sentiment remained broadly resilient, despite a renewed rise in oil prices towards the end of the month.

The US remained a key driver of global market performance, supported by an exceptionally strong second-quarter earnings season in which the majority of S&P 500 companies exceeded profit expectations, with earnings growth reaching its highest rate since 2021. The S&P 500 touched a fresh record high mid-month before easing back, while the technology-heavy Nasdaq outperformed as investor confidence in AI-related infrastructure spending was reaffirmed. The Federal Reserve did not meet during August, leaving interest rates unchanged, but a more hawkish tone from policymakers and firmer-than-expected inflation data have increased the prospect of a rate rise when the Committee next meets.

AI remained the dominant structural theme influencing market direction. Semiconductor and technology shares staged a sharp recovery in the first half of August, rebounding from July’s steep sell-off to record their strongest August performance in over two decades, as confidence in the durability of AI-related capital spending returned. Volatility resurfaced later in the month, however, as rising government bond yields and renewed concerns over potential further interest rate rises weighed on higher-growth areas of the market. Demand for semiconductors, power infrastructure and industrial metals continued to underpin the broader AI supply chain.

Global equity market leadership broadened further during August, extending beyond the US to Europe and Japan. European equities made further progress, supported by resilient corporate earnings and steady economic growth, despite ongoing sensitivity to the geopolitical backdrop. Japanese equities also extended their advance, with the Nikkei 225 making further headway, supported by a weaker yen, continued corporate governance reform and encouraging domestic growth data.

Emerging market equities were broadly positive over the month, with Chinese shares recovering sharply, building on continued government support measures. The wider Asia-Pacific region continued to benefit from renewed strength in the semiconductor sector, following July’s steep sell-off.

The UK equity market was broadly positive, with performance led by mid- and small-cap companies. The FTSE 250 reached fresh record highs during the month, supported by a continued wave of takeover activity and improving investor sentiment. The FTSE 100 eased back modestly from the all-time high reached at the end of July, but held on to the bulk of its earlier gains, supported by strength in the financial and mining sectors. The transition to a new UK government continued to be closely watched by investors, with markets so far taking the change in political leadership in their stride.

Fixed income markets came under modest pressure during August as government bond yields moved higher, reflecting a reassessment of the outlook for interest rates and inflation. The Bank of England did not meet during the month, leaving the base rate unchanged at 3.75%, with its next decision due on 17 September. UK inflation rose to 2.9% in the year to July, up from 2.6% in June, driven largely by higher household energy costs, reducing near-term expectations of further interest rate cuts. A sharp move higher in benchmark UK government bond (gilt) yields towards 18-year highs late in the month and in early September threatens to constrain the government’s fiscal headroom ahead of the autumn Budget.

Commodity markets generally strengthened during August. Oil prices were volatile through the month as tensions between the US and Iran resurfaced, with renewed attacks around the Strait of Hormuz reviving concerns over the security of global energy supplies and pushing Brent crude back above $90 a barrel. Gold prices rose sharply, supported by continued safe-haven demand and expectations that interest rates may need to rise further to contain inflation. Industrial metals remained well supported by structural demand linked to electrification, AI infrastructure and data centre construction.

Markets have continued to demonstrate resilience over the summer months, with robust corporate earnings and sustained investment in AI infrastructure helping to offset renewed geopolitical uncertainty and a more uncertain path for interest rates. The prospect of a Federal Reserve rate rise, alongside a resurgence in Middle East tensions, adds a further dimension of uncertainty as markets move into the autumn. The combination of resilient earnings, sticky inflation, geopolitical uncertainty and elevated valuations in parts of the market reinforces the importance of maintaining diversification across asset classes, regions and investment styles.

Total returns in GBP to 31/08/2026

* Inflation data to July 2026

Source of data: FE Analytics, www.bankofengland.co.uk, www.ons.gov.uk

This commentary in no way constitutes a solicitation of investment advice and should not be relied upon in making investment decisions. Past performance is not a reliable indicator of future results. The value of your investments can fall as well as rise and are not guaranteed.