September 2026

Estimated read time: 6 minutes

Political change, persistent inflation and tensions in the Middle East shaped the third quarter of 2026. Rising interest rates and government borrowing put pressure on bonds, while enthusiasm for artificial intelligence helped stock markets remain resilient. As the year draws to a close, investors are watching the UK’s Autumn Budget, the dominance of major technology companies and ongoing uncertainty around global trade.

The UK saw another change in political leadership over the summer, with Andy Burnham replacing Sir Keir Starmer as Prime Minister.

September’s Labour Party conference outlined several significant policy ambitions, including potential changes to the pension triple lock from 2030, proposals for a National Care Service and a reassessment of the UK’s relationship with the European Union.

Attention now turns to October’s Autumn Budget, where further detail on taxation and public spending is expected. For investors and households alike, the direction of government policy will be an important consideration in the months ahead.

Beyond the UK, tensions in the Middle East continued to affect global markets. Ongoing hostilities complicated negotiations between the US and Iran over restoring shipping through the Strait of Hormuz. The resulting uncertainty contributed to volatile oil and gas prices, adding further pressure to inflation.

Central banks have remained cautious. Having experienced the sharp inflation increases of 2022, policymakers are particularly alert to the risk of prices rising again.

In September, both the US Federal Reserve and the European Central Bank raised interest rates by 0.25 percentage points. The Bank of England held its rate at 3.75%, although three of its nine committee members favoured an increase.

This represents a shift from the beginning of the year, when further interest rate cuts had been widely anticipated. Persistent inflation has instead raised the possibility of additional increases.

Bond markets felt the impact. Government bond yields rose, causing prices to fall, with longer-dated bonds particularly affected. In the UK, 30-year gilt yields reached 6%, levels last seen in 1998.

Higher inflation expectations and substantial government borrowing continued to weigh on bond markets globally.

Stock markets, however, proved more resilient.

Enthusiasm surrounding artificial intelligence remained an important source of support, particularly for major US technology companies. Strong results from Nvidia in August highlighted the extraordinary demand for AI-related technology.

Nevertheless, questions remain over whether the substantial investment being directed towards AI will ultimately generate the returns investors expect.

The increasing influence of a relatively small number of technology businesses also means that wider stock markets could be sensitive to any disappointment in their performance.

Trade tensions provided another source of uncertainty. New US tariffs were introduced in July, while September’s meeting between Donald Trump and Xi Jinping extended the existing trade truce without delivering a broader agreement.

Although this offered some short-term stability, the underlying trade disagreements remain unresolved.

Bottom Line

Rising bond yields can create short-term discomfort for investors, but they also present opportunities.

Higher yields mean bonds now offer more attractive income than they have for much of the past decade. This additional income provides a greater cushion against potential price falls, improving the long-term return potential for investors.

While bond prices can still decline, the higher level of income available today offers a more favourable starting point for patient, long-term investors, provided issuers continue to meet their obligations.

Q&A

What’s on your mind?

What did fixed income (bonds) do in the third quarter of 2026?

The third quarter was challenging for bond investors.

Persistent inflation, partly driven by higher energy prices, increased expectations that central banks would raise interest rates further. This pushed government bond yields higher and prices lower across several major markets.

Longer-dated bonds were particularly affected because their prices tend to be more sensitive to changes in interest rates.

Corporate bonds issued by financially stronger businesses generally demonstrated greater resilience. Steady economic growth and healthy company finances provided reassurance about businesses’ ability to repay their debts, while the income available continued to attract investors.

Despite periods of volatility, bonds continue to offer relatively attractive income compared with much of the previous decade.

Holding a diversified selection of government and corporate bonds can help spread investment risk.

Importantly, although rising yields can cause short-term price declines, they also improve the potential returns available to investors over the longer term.

What did stock markets do in the third quarter of 2026?

Global stock markets delivered modest positive returns during the third quarter, despite continued geopolitical uncertainty and inflationary pressure.

The ongoing conflict involving Iran kept energy prices elevated, but resilient economic growth and strong corporate earnings helped support shares.

The US was among the strongest regional performers, delivering mid-single-digit returns over the quarter. Major technology companies continued to benefit from enthusiasm surrounding artificial intelligence, while the wider US economy remained resilient.

UK and Japanese shares also recorded modest gains.

Emerging markets experienced a small decline, with much of the weakness occurring in July. Technology companies in South Korea and Taiwan were particularly affected as investors questioned elevated valuations and whether expectations for AI-related growth could be sustained.

Value shares, which trade at relatively low prices compared with company earnings or assets, outperformed growth shares, extending their lead for the year.

Higher interest rates placed pressure on growth companies, whose valuations are often more dependent on expectations of future profits.

Financial and energy companies performed comparatively well. Higher interest rates supported the earnings outlook for some banks, while elevated oil prices benefited energy businesses.

Overall, the quarter demonstrated the resilience of global stock markets, while highlighting the importance of remaining diversified rather than relying too heavily on a small group of leading companies.

What did real assets do in the third quarter of 2026?

Real assets, including commodities, infrastructure and property, experienced a mixed quarter.

Energy prices benefited from ongoing tensions in the Middle East, with concerns over potential supply disruptions pushing Brent crude oil above $100 per barrel.

Precious metals, including gold, performed well earlier in the quarter but came under pressure in September.

Higher bond yields and expectations of further US interest rate increases made income-producing investments more attractive relative to gold, which does not provide income.

Infrastructure investments faced a combination of opportunities and challenges.

The expansion of data centres and increasing demand for electricity continued to support investment in power generation and energy networks.

However, higher bond yields reduced the relative appeal of the stable income offered by infrastructure companies, putting pressure on their share prices. As a result, infrastructure investments lagged the wider stock market despite encouraging longer-term prospects.

Property markets also faced difficulties.

Higher interest rates increased borrowing costs and weighed on property valuations. Although demand remained resilient in certain sectors, particularly data centres benefiting from artificial intelligence and cloud computing, this was not enough to offset the broader challenges.

The quarter reinforced how sensitive real assets can be to movements in interest rates, inflation and global economic conditions.

Month by Numbers

As at 30 September 2026

The following figures show market movements during September 2026, alongside the latest UK interest rate and inflation readings.

Equities

• Global: +0.92%
• US: +1.67%
• UK: -1.88%
• Europe: -2.78%
• Japan: +3.57%
• Emerging Markets: +1.48%

Bonds / Rates

• Global Bonds: -1.69%
• Government Bonds: -1.43%
• Corporate Bonds: -2.16%
• UK Base Rate: 3.75% (unchanged)
• UK Inflation: 3.10% (up 0.10 percentage points)

Currencies

• GBP / USD: $1.33 (-2.08%)
• GBP / EUR: €1.17 (+0.37%)

Commodities

• Oil: +19.06%
• Gold: -1.39%

Noteworthy

• UK Politics: Andy Burnham became Prime Minister, with attention turning to October’s Autumn Budget.
• Interest Rates: The US Federal Reserve and European Central Bank each increased rates by 0.25 percentage points in September.
• UK Government Bonds: 30-year gilt yields reached 6%, levels last seen in 1998.
• Artificial Intelligence: Strong demand continued to support leading technology companies, although concerns remained around valuations and future returns.
• Middle East: Ongoing tensions contributed to higher and more volatile energy prices.
• Global Trade: The US and China extended their trade truce, although broader disagreements remained unresolved.