Global Overview
Whilst the third quarter of 2026 was a more demanding period for investors with more volatility, I am delighted that all our portfolios increased and outperformed over the quarter. Global equity markets at the end of September were less than 2% below their all-time highs and more than 10% higher over the last year, largely thanks to continued enthusiasm for artificial intelligence. Beneath the surface, however, the tone has changed. The main story was the return of inflation concerns and a return towards tighter monetary policy by several major central banks, with the Iran conflict and elevated energy prices remaining key issues.
Market leadership rotated. After a powerful run, parts of the AI and semiconductor sectors retreated. The Philadelphia Semiconductor Index dropped around 14% over the quarter, and even some of the year’s biggest winners, such as Micron experienced overall declines. This was a useful reminder that strong long-term themes can still see sharp short-term swings, and that diversification across sectors and regions is important to mitigate volatility.
Inflation and Monetary Policy
In Q2 the key question was whether the energy-driven inflation shock would prove temporary. In Q3, central banks increasingly acted as though it might not be. Energy costs fed through more widely into prices, and input prices paid by businesses rose to a near four-year high.
The most significant change came from the US Federal Reserve. On 16 September it raised rates by 0.25% to a target range of 3.75% to 4%, its first increase since July 2023. Chairman Kevin Warsh described inflation as “too high … for too long”. The European Central Bank also raised its three key rates by 0.25%, taking the deposit rate to 2.50%. The Bank of Japan lifted its policy rate to 1.25%, the highest since 1995.
The Bank of England held Bank Rate at 3.75%, but the vote was split 6–3. The decision was to maintain the rate balancing persistent inflation at 3.1% with high global energy prices.
For investors, this confirms that the era of rate cuts has been pushed further into the future. Higher policy rates bring significant short-term pressure on bond prices and highly valued growth shares. They also mean that cash and high-quality bonds offer meaningful yields, which continues to be helpful for income-seeking and more cautious investors.
United States
US equities remained resilient overall, with major indices close to record levels, but the quarter was more volatile than Q2. The Fed’s move to raise rates, together with its higher inflation forecasts, reminded markets that policy support cannot be taken for granted. The Fed now projects headline inflation of 3.7% for 2026 and does not expect to reach its 2% target until 2029. Economists also increasingly see the scale of AI investment as a possible source of inflation in its own right.
The pullback in semiconductors was the clearest sign of investors becoming more careful about AI valuations. The underlying investment theme is still intact, but markets have become more discerning about price and profitability.
The AI listings pipeline also shifted. OpenAI’s chief executive Sam Altman said the company would not go public in 2026, citing AI safety concerns. Anthropic, by contrast, is reported to be preparing for a possible listing in November 2026. Following SpaceX’s record Initial Public Offer (IPO) in Q2, this means the pace of mega-listings is likely to be less intense than many expected. That may help reduce concerns about a flood of new supply in highly valued AI companies. Our view is unchanged: disciplined valuation analysis and diversification are both more important than chasing new initial listings.
In fixed income, Treasury yields rose significantly. Markets are increasingly debating whether long-term borrowing costs of 5% or more could become the norm. By late September the 10-year Treasury yield had reached 5.25% and the 30-year yield 5.55%, its highest level since 2002. Short-duration and high-quality bonds continue to act as a sensible stabilizer since the yield on longer dated bonds could yet ticker higher.
Europe and the UK
European equities faced a tougher backdrop, with renewed energy pressures and the ECB’s latest rate rise weighing on sentiment. The region’s structural challenges around growth and energy dependency remain. However, valuations are still generally lower than in the US, which continues to offer opportunities in companies with strong global franchises.
In the UK, inflation moved higher again. CPI rose to 3.1% in August, and the Bank of England expects it to reach around 3.75% in Q4 and peak slightly above 4% in early 2027, largely because of energy costs before reducing. The Ofgem price cap is also rising to £1,723 for October to December representing a painful hike in energy bills for UK consumers not on fixed tariffs. On a more positive note, services inflation has softened to 3.4% from 4.5% in March, and wage growth is slowing. This suggests that domestic inflation pressures are cooling even as energy costs push the headline rate higher.
The FTSE 100 held up relatively well, trading around the 10,650 level towards the end of the quarter. It was supported again by its weighting in energy, commodities and financials, while the more domestically focused FTSE 250 was more sensitive to interest-rate and inflation news. Gilt yields increased significantly reflecting both global macro economic factors and more specific concerns with the UK political and economic situation, potentially offering attractive income for cautious investors. UK equities continue to look good value for patient long-term capital in our view.
Japan, Asia and Emerging Markets
Japan’s long-term case, built on corporate reform, capital discipline and higher shareholder returns, remains in place. The Bank of Japan’s rate rise to 1.25% was passed by a 7–2 vote, and Governor Ueda said the focus has shifted to guarding against inflation running above target. He did not rule out further increases. This continued normalisation may create some short-term currency and bond market volatility, but it reflects an economy that is finally moving away from deflation.
In China, markets were steadier. The Shanghai Composite traded in the high 3,800s to mid-3,900s in September, supported by technology shares, while the People’s Bank of China kept lending rates at record lows. Property and consumer weaknesses have not been fully resolved.
Elsewhere in Asia, economies linked to AI hardware were affected by the quarter’s semiconductor pullback, while energy importers remained exposed to Middle East news. Emerging markets overall were mixed. Commodity exporters benefited from high oil prices, while countries with weaker finances were more vulnerable to rising global rates. Selectivity remains essential.
Commodities and Currencies
Energy was once again central. Oil rose to a six-week high in early September after renewed threats against regional energy infrastructure, and Brent crude oil stayed above $100 a barrel for much of the month. Late in the quarter, reports that US and Iranian negotiators were exploring a phased route out of the conflict, including reopening the Strait of Hormuz, brought some relief. Brent settled at around $103 at the end of the quarter. A lasting truce would be a significant positive for inflation and markets, but it remains far from certain.
Gold has been volatile over the last 3 months, increasing overall during the quarter from just over $4,000 to around $4,180 at the end of September. However, the gold price rose to over $4,600 in late August, before retreating sharply as interest rate expectations have increased. It nevertheless continues to have a potential role to play as a hedge against geopolitical and inflation risks.
In currency markets, the direction of interest-rate policy was the main driver. The Fed’s rate rise supported the dollar, while the Bank of Japan’s more hawkish stance gave some support to the yen. Sterling was influenced by the Bank of England’s split vote and the rising inflation outlook. Managing currency exposure remains an important part of portfolio construction.
Investment Outlook
As we enter the final quarter of 2026, the outlook is one of cautious optimism, tempered by a more difficult inflation and interest-rate environment. The main risks are clear:
- the path of the Middle East conflict and energy prices
- the possibility that inflation stays higher for longer, forcing further rate rises impacting economic growth
- a global bond rout reflecting inflation worries and the sustainability of government deficits leading to an increase in corporate borrowing costs and potentially a trigger for an equity market correction
- continued volatility in highly valued AI-related shares, especially with bond yields at elevated levels
There are also some important positives. Global companies are generally in good financial health, the outcome of US–Iran talks could bring welcome relief after the US Mid-Term elections, and higher yields mean that many sovereign bonds now offer genuinely useful income. The long-term potential of AI, digital infrastructure, energy transition and wider innovation remains substantial. The US economy in particular appears to be both resilient and buoyant with regard to economic growth.
For more cautious investors, this environment continues to support a diversified approach built around a sensible allocation to global equities to help protect purchasing power, together with high-quality, shorter-duration bonds as income-producing assets.
For more growth-oriented investors, the quarter’s rotation away from some AI leaders endorses the importance of a balanced exposure across regions, sectors and investment styles, rather than concentrating on a narrow set of themes. As always with equities, volatility remains the price of long-term real returns.
For both groups, the key message is unchanged: staying invested in a well-diversified portfolio that matches your attitude to risk remains the most sensible way to navigate short-term uncertainty while taking part in attractive longer-term opportunities.
Please note that the content on this page is based on our understanding and the available information; we cannot be held responsible for any errors, and you should not act on the basis of the information in these articles, nor do they constitute investment advice. Past performance is not necessarily an indication of future returns; the value of investments and any income from them is not guaranteed and can fall as well as rise. Overseas investments are affected by currency movements and exchange rates. If you would like investment advice on your individual circumstances, please do not hesitate to get in touch via telephone at 01392 875500 or email at info@SeabrookClark.co.uk
Investment Commentary and Market Overview – Quarter 3 2026: 1 July to 30 September 2026 and Outlook
Matthew Clark
Global Overview
Whilst the third quarter of 2026 was a more demanding period for investors with more volatility, I am delighted that all our portfolios increased and outperformed over the quarter. Global equity markets at the end of September were less than 2% below their all-time highs and more than 10% higher over the last year, largely thanks to continued enthusiasm for artificial intelligence. Beneath the surface, however, the tone has changed. The main story was the return of inflation concerns and a return towards tighter monetary policy by several major central banks, with the Iran conflict and elevated energy prices remaining key issues.
Market leadership rotated. After a powerful run, parts of the AI and semiconductor sectors retreated. The Philadelphia Semiconductor Index dropped around 14% over the quarter, and even some of the year’s biggest winners, such as Micron experienced overall declines. This was a useful reminder that strong long-term themes can still see sharp short-term swings, and that diversification across sectors and regions is important to mitigate volatility.
Inflation and Monetary Policy
In Q2 the key question was whether the energy-driven inflation shock would prove temporary. In Q3, central banks increasingly acted as though it might not be. Energy costs fed through more widely into prices, and input prices paid by businesses rose to a near four-year high.
The most significant change came from the US Federal Reserve. On 16 September it raised rates by 0.25% to a target range of 3.75% to 4%, its first increase since July 2023. Chairman Kevin Warsh described inflation as “too high … for too long”. The European Central Bank also raised its three key rates by 0.25%, taking the deposit rate to 2.50%. The Bank of Japan lifted its policy rate to 1.25%, the highest since 1995.
The Bank of England held Bank Rate at 3.75%, but the vote was split 6–3. The decision was to maintain the rate balancing persistent inflation at 3.1% with high global energy prices.
For investors, this confirms that the era of rate cuts has been pushed further into the future. Higher policy rates bring significant short-term pressure on bond prices and highly valued growth shares. They also mean that cash and high-quality bonds offer meaningful yields, which continues to be helpful for income-seeking and more cautious investors.
United States
US equities remained resilient overall, with major indices close to record levels, but the quarter was more volatile than Q2. The Fed’s move to raise rates, together with its higher inflation forecasts, reminded markets that policy support cannot be taken for granted. The Fed now projects headline inflation of 3.7% for 2026 and does not expect to reach its 2% target until 2029. Economists also increasingly see the scale of AI investment as a possible source of inflation in its own right.
The pullback in semiconductors was the clearest sign of investors becoming more careful about AI valuations. The underlying investment theme is still intact, but markets have become more discerning about price and profitability.
The AI listings pipeline also shifted. OpenAI’s chief executive Sam Altman said the company would not go public in 2026, citing AI safety concerns. Anthropic, by contrast, is reported to be preparing for a possible listing in November 2026. Following SpaceX’s record Initial Public Offer (IPO) in Q2, this means the pace of mega-listings is likely to be less intense than many expected. That may help reduce concerns about a flood of new supply in highly valued AI companies. Our view is unchanged: disciplined valuation analysis and diversification are both more important than chasing new initial listings.
In fixed income, Treasury yields rose significantly. Markets are increasingly debating whether long-term borrowing costs of 5% or more could become the norm. By late September the 10-year Treasury yield had reached 5.25% and the 30-year yield 5.55%, its highest level since 2002. Short-duration and high-quality bonds continue to act as a sensible stabilizer since the yield on longer dated bonds could yet ticker higher.
Europe and the UK
European equities faced a tougher backdrop, with renewed energy pressures and the ECB’s latest rate rise weighing on sentiment. The region’s structural challenges around growth and energy dependency remain. However, valuations are still generally lower than in the US, which continues to offer opportunities in companies with strong global franchises.
In the UK, inflation moved higher again. CPI rose to 3.1% in August, and the Bank of England expects it to reach around 3.75% in Q4 and peak slightly above 4% in early 2027, largely because of energy costs before reducing. The Ofgem price cap is also rising to £1,723 for October to December representing a painful hike in energy bills for UK consumers not on fixed tariffs. On a more positive note, services inflation has softened to 3.4% from 4.5% in March, and wage growth is slowing. This suggests that domestic inflation pressures are cooling even as energy costs push the headline rate higher.
The FTSE 100 held up relatively well, trading around the 10,650 level towards the end of the quarter. It was supported again by its weighting in energy, commodities and financials, while the more domestically focused FTSE 250 was more sensitive to interest-rate and inflation news. Gilt yields increased significantly reflecting both global macro economic factors and more specific concerns with the UK political and economic situation, potentially offering attractive income for cautious investors. UK equities continue to look good value for patient long-term capital in our view.
Japan, Asia and Emerging Markets
Japan’s long-term case, built on corporate reform, capital discipline and higher shareholder returns, remains in place. The Bank of Japan’s rate rise to 1.25% was passed by a 7–2 vote, and Governor Ueda said the focus has shifted to guarding against inflation running above target. He did not rule out further increases. This continued normalisation may create some short-term currency and bond market volatility, but it reflects an economy that is finally moving away from deflation.
In China, markets were steadier. The Shanghai Composite traded in the high 3,800s to mid-3,900s in September, supported by technology shares, while the People’s Bank of China kept lending rates at record lows. Property and consumer weaknesses have not been fully resolved.
Elsewhere in Asia, economies linked to AI hardware were affected by the quarter’s semiconductor pullback, while energy importers remained exposed to Middle East news. Emerging markets overall were mixed. Commodity exporters benefited from high oil prices, while countries with weaker finances were more vulnerable to rising global rates. Selectivity remains essential.
Commodities and Currencies
Energy was once again central. Oil rose to a six-week high in early September after renewed threats against regional energy infrastructure, and Brent crude oil stayed above $100 a barrel for much of the month. Late in the quarter, reports that US and Iranian negotiators were exploring a phased route out of the conflict, including reopening the Strait of Hormuz, brought some relief. Brent settled at around $103 at the end of the quarter. A lasting truce would be a significant positive for inflation and markets, but it remains far from certain.
Gold has been volatile over the last 3 months, increasing overall during the quarter from just over $4,000 to around $4,180 at the end of September. However, the gold price rose to over $4,600 in late August, before retreating sharply as interest rate expectations have increased. It nevertheless continues to have a potential role to play as a hedge against geopolitical and inflation risks.
In currency markets, the direction of interest-rate policy was the main driver. The Fed’s rate rise supported the dollar, while the Bank of Japan’s more hawkish stance gave some support to the yen. Sterling was influenced by the Bank of England’s split vote and the rising inflation outlook. Managing currency exposure remains an important part of portfolio construction.
Investment Outlook
As we enter the final quarter of 2026, the outlook is one of cautious optimism, tempered by a more difficult inflation and interest-rate environment. The main risks are clear:
There are also some important positives. Global companies are generally in good financial health, the outcome of US–Iran talks could bring welcome relief after the US Mid-Term elections, and higher yields mean that many sovereign bonds now offer genuinely useful income. The long-term potential of AI, digital infrastructure, energy transition and wider innovation remains substantial. The US economy in particular appears to be both resilient and buoyant with regard to economic growth.
For more cautious investors, this environment continues to support a diversified approach built around a sensible allocation to global equities to help protect purchasing power, together with high-quality, shorter-duration bonds as income-producing assets.
For more growth-oriented investors, the quarter’s rotation away from some AI leaders endorses the importance of a balanced exposure across regions, sectors and investment styles, rather than concentrating on a narrow set of themes. As always with equities, volatility remains the price of long-term real returns.
For both groups, the key message is unchanged: staying invested in a well-diversified portfolio that matches your attitude to risk remains the most sensible way to navigate short-term uncertainty while taking part in attractive longer-term opportunities.
Please note that the content on this page is based on our understanding and the available information; we cannot be held responsible for any errors, and you should not act on the basis of the information in these articles, nor do they constitute investment advice. Past performance is not necessarily an indication of future returns; the value of investments and any income from them is not guaranteed and can fall as well as rise. Overseas investments are affected by currency movements and exchange rates. If you would like investment advice on your individual circumstances, please do not hesitate to get in touch via telephone at 01392 875500 or email at info@SeabrookClark.co.uk
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