The US equity market posted a positive return of +2.9% in Q3. As this is such a large proportion of the global index, this helped the global benchmark return +2.4%. However, we need to look at things a little closer. The conflict in the Middle East has been raging on, and this is having several impacts. Energy & oil prices are being driven higher driving up the expectations for inflation and the potential requirement for central banks to have to raise interest rates to combat it. Over the month the real (and only winners), were the technology and Artificial Intelligence (AI) related stocks. This is best shown in the performance of the US’s tech index which delivered over +3% return in September alone, driven by robust AI capital expenditure. This growth also arrived despite the existential threat posed by superintelligent AI finally entering the mainstream discourse. In the month since Jacob Coxon’s tweets went viral, the US tech index is up 4.46%. Despite calls from across the political and academic worlds, the AI race remains (for now) an effectively regulatory-free endeavour, with Trump and the US AI leaders agreeing to a voluntary accord upheld by some “morally binding” “self-policing”. In contrast to tech, the industrials part of the US market (or anything interest rate sensitive) declined -4%. We can see here the huge divergence opening up in performance within the US equity market.

The UK markets delivered +1.8% in Q3 despite concern over energy prices, inflation and interest rate expectations having a dampening effect on Europe (-2.1%). Trump’s threat to introduce an oil export ban forced European leaders to release 100mn barrels of oil supplies. The EU imported 18.8% of its oil from the US during Q2, so a pre-Midterms ban to try and drive down US domestic prices would have a massive impact on European prices. The Japanese market had positive returns of +6.0%, and Asia ex Japan rose +4.6%, whilst the emerging markets declined by -1.08%. Most of the Japanese returns came from the strength in the Yen, which rallied strongly after further interest rate hikes by the Bank of Japan (BoJ). With the weakness in sterling helping UK investor returns from emerging market regions over the month, this was also coupled with significant policy intervention from China in September, which improved the poor returns there. Beijing pumped over £40bn into the financial system, while also looking to support certain mortgage subsidies and increased bank lending quotas. This was all received positively by the market.

On the back of the conflict in the Middle East and rising oil prices, interest rate hike expectations increased. This led to all parts of the bond market delivering negative returns.

This small company growth appears to have been driven by a combination of factors. August coincided with a solid UK reporting season with many FTSE 250 and AIM companies delivering better than expected results. UK smaller companies had been trading at historically depressed valuations relative to large cap stocks and it appears that both domestic and international investors have been rotating ‘cheaper’, more domestically oriented stocks. Japan was also a strong performer benefitting from the data centre build-out as well as a looser domestic fiscal stance. Finally, Asian and Emerging Markets posted gains led largely by a recovery in some of the larger AI related stocks including Taiwan Semi-Conductor, Samsung and SK Hynix.

Bond markets were somewhat mixed in August although returns were generally muted. All eyes were focussed on Central Banks who are weighing up the impacts of higher inflation, uncertainty over fiscal policy as well as macro-economic growth. The Bank of England (BoE) kept interest rates unchanged at 3.75% however three of the nine members had voted to increase rates by 0.25% noting that inflation has remained above target for several years. On the other side of the Atlantic, the Fed also kept rates on hold. Looking forward, importantly for September’s decision, new Fed Chairman Warsh noted that inflation data has not meaningfully improved in his keynote Jackson Hole Symposium speech, perhaps suggesting change is in the air. Within alternatives, commodities had generated outsized returns over the month led by precious metals as well as energy indices. Gold was supported in August by dollar weakness and central bank purchases while energy commodities continued to advance as the Middle East backdrop remains tense.

Taking South Korea as an example, the market has delivered exceptionally strong performance in recent months. However, it is heavily dominated by the semiconductor sector and, in particular, by two companies: SK Hynix and Samsung Electronics. As a result, the South Korean market experienced significant losses during the month, driven largely by the sell-off in these two stocks.

Bond markets were also negative over the month, with most government and corporate bond indices declining by around 1%. In the UK yields went up after Nigel Farage decided to resign and hold a by-election in his Clacton-on-Sea constituency. However, they fell again shortly after when Andy Burnham was nominated to be the next Labour party leader and PM. Counter to press expectations, Burnham named John Healey as Chancellor. Healey resigned as Defence Secretary in June in a row over military spending. UK defence stocks like Babcock and BAE surged on the news and the likelihood that Healey will increase defence spending from 2.7% to 3%.

The UK market generated gains of 1.2% in the face of political instability. News of Sir Keir Starmer’s resignation has had little impact on equity markets, with markets instead focusing on who Andy Burnham – Starmer’s more than likely successor – will appoint as Chancellor. European equities also performed strongly, returning 2.2% in a month where the ECB hiked rates by 0.25% to 2.25%. The composition of the European market has meant that it has been largely unaffected by recent volatility in the technology sector and has benefitted from the outperformance of value stocks. Finally, Japan posted gains of 1.1%, with improving corporate guidance in chip-related sectors and optimism around a U.S.-Iran ceasefire being the key drivers.

Bonds delivered modest positive returns as sovereign yields declined across many markets, providing some relief despite earlier pressures from geopolitics. Gilts had another positive month up 1%, compounding gains in May, but remain down (-2.3%) year to date after a difficult March. Despite a strong rebound in the last two months, gilts continue to significantly lag short duration credit in 2026, which has weathered volatility well due to having a lower sensitivity to interest rate expectations.

The US equity market was up nearly 7% on the back of the AI trend. The AI boom dominated US market growth over the month, with the US information technology sector up 17% in May. Having delivered a stronger-than-expected Q1 GDP number (+2.1% growth), Japanese equities generated returns over 7%. The UK equity market delivered decent if less spectacular returns than many other regions – 2% over the month. In this risk-on environment, broad commodities posted marginally positive return, while gold seemed to lose a bit of its shine and was fractionally negative for the month.

Fixed income markets were volatile over the month as yields contracted and increased based on expectations of shifts in inflation and central bank rhetoric. Kevin Warsh’s appointment as Fed Chair was confirmed by the US senate. Despite the likelihood that he’ll be more sympathetic to the whims of Donald Trump than his predecessor, Jerome Powell, its unlikely he’ll be able to cut interest rates with inflation going in the wrong direction and US job numbers in reasonable health. Overall, fixed income delivered positive returns in May, with the reduction in the conflict in the Middle East being the biggest factor. This saw the price of oil drop below $100 a barrel, relieving some inflationary pressures.

The Magnificent 7 firms, Amazon, Alphabet and Microsoft all exceeded earnings expectations with their cloud computing units benefitting from the intense demand for AI infrastructure. Chinese AI startup DeepSeek showed a preview of their new model later in the month but, despite it being much cheaper and easier to optimise than its US counterparts, US tech markets were spared the type of hit they took when DeepSeek first launched in January 2025.

April was a good month for US company earnings, with 84% of reporting firms beating estimates. Major US banks posted strong numbers as the volatility caused by the Iran conflict significantly increased client trades. On a less economically cheery note, towards the end of the month US public debt ($31.27tn) surpassed annual US GDP ($31.22tn) for the first time since the Second World War.

As expected, all major central banks opted to hold interest rates. Jerome Powell led a Fed Committee meeting for what is likely to be the last time, with Kevin Warsh set to take over this month. Powell announced he’ll remain on the Fed’s Board of Governors until investigations against him and the Fed are “truly over”. Most bond indices finished the period lower.

Government bond yields moved higher (as bond prices fell) on concerns that the recent surge in oil prices would feed into higher inflation. This was particularly acute in the UK where expectations shifted from interest rate cuts (prior to the Iran conflict) to expectations of a potential rate hikes. The UK’s reliance on imported energy may potentially amplify the inflationary impacts of higher energy prices and as a result Gilts fell -1.8% over the last three months. The turmoil caused by the local election results last week has sent bond yields to a 28-year high. Though short- dated, investment grade bonds did manage to generate modest gains in April.

Most bond indices finished the period lower. Government bond yields moved higher (resulting in bond prices finishing lower) as concerns that the recent surge in oil prices would feed into higher inflation. This was particularly notable to us in the UK where expectations shifted from Bank of England interest rate cuts (prior to the Iran conflict) to potential rate hikes. The UK’s reliance on imported energy may potentially amplify the inflationary impacts of higher energy prices and as a result, gilts fell -3.8% over the month. Short- dated investment grade bonds also finished lower, although the drawdowns were more muted.

US equity returns have been modest, returning just under 1% so far this year. Interestingly, we have seen a meaningful rotation away from mega-cap US technology and growth names over the past couple of months. While some earnings remain strong, there have been concerns about the likely return on investment from artificial intelligence (AI). Companies who have announced more capital expenditure have typically been punished, for example early in the month Amazon had $300bn wiped off their market capitalisation when they reported a 25% higher than expected increase in capital expenditure. 

Worries about the impact AI agents and tools will have on software and wealth management firms dragged share prices down in both sectors. In the final week of February, a viral ‘doomsday’ essay by Citrini Research spooked investors, sparking another sell off that hit firms like Uber and Mastercard particularly hard. Conversely, we’ve started to see other areas such as value and small to mid-cap stocks start to outperform, benefitting the more diversified way we’ve positioned our portfolios.

Bond markets posted decent gains, particularly in the latter half of the month. Growing economic uncertainty, moderating inflation signals and increasing geopolitical risks all helped push bond prices up. Expectations of lower interest rates helped infrastructure related investments while gold also benefitted from geopolitical uncertainty (+7%).

Looking at the UK equity market, it was pleasing to see small caps and the Alternative Investment Market (AIM) return far more than the broader market (+4.6% & +6.8% respectively). These smaller company stocks have been out of favour with investors for some time, but expectations of further interest rate cuts from the Bank of England (BoE) should help this part of the market which tends to be more sensitive to borrowing costs. Small cap businesses also tend to be more insulated from geopolitical noise which was rife over the month.

President Trump gave markets a lot to digest in January. Just two days into the year, the US launched airstrikes on military bases in Caracas and captured Venezuelan President Nicolás Maduro in a 2am raid. Within days the US intervention in Venezuela was knocked off the headlines when Trump stepped up his campaign to take “ownership” of Greenland and threatened to impose new tariffs on eight Nato allies over their opposition to his planned takeover of the country.

Domestically, protests erupted across the US following the murders of Renee Good and Alex Pretti by ICE and Border Patrol agents. Concerns about the independence of the Federal Reserve were heightened when the Department of Justice (DOJ) launched a criminal investigation into Fed Chair, Jerome Powell. In response, Powell said he was being threatened with criminal charges because the Fed had been setting interest rates, “based on our best assessment of what will serve the public, rather than following the preferences of the president.” Later in the month, Trump nominated Kevin Warsh to replace Powell when he leaves his post in May. Warsh has backed maintaining higher interest rates in the past and markets reacted positively to what many perceive to be a safer choice than some of the other rumoured candidates. However, Warsh’s ties to Trump allies like Ronald Lauder, and the DoJ’s investigation into Powell could hold up the confirmation process.

Although most equity regions brushed off all the political drama, gold rallied extremely hard on these tensions with the asset class +13.5% over January. More broadly, commodities had a strong month delivering a return of +7.3%. Oil and gas prices rallied over double digits on the back of colder winter weather and an associated fall in storage levels.

The US equity market softened -0.6% over the month but still added just under 10% for the year. 2025 was, in recent times, an outlier year where other major regions significantly outperformed the US equity market in sterling terms. This was, as noted above, largely attributed to dollar weakness as the dollar experienced its largest annual decline since 2009. Artificial Intelligence (AI) has been a dominant theme in the US driving most of the gains over the year. However corporate profits have broadly outperformed expectations and GDP growth remains quite strong compared to developed market counterparts.

Though returns across bond markets were subdued relative to equity markets, they were still positive providing a good ballast to portfolios. Government bonds (Gilts and US Treasuries) both generated gains on the view that the BoE and Fed are likely to cut rates into the New Year. Credit strategies also posted gains as corporate profits and balance sheets remain robust.