2026 - Q3 market commentary

Markets remain resilient despite headwinds

Global markets remained relatively steady in the third quarter, shrugging off renewed tensions in the Middle East, persistent inflation concerns and higher oil prices to stay close to record highs. Strong corporate earnings, steady economic growth and continued investment in AI supported equities, while smaller companies and markets beyond the biggest technology names began to catch up. Central banks stayed cautious over interest rate cuts as higher energy prices added to inflation pressures, although economic growth continued to provide support.

In this update, we’ll reflect on these developments and take a look at some of the highlights and lowlights of the quarter, as well as bring you our usual fund outlook from our Investments team.

Global market overview

Global equities held up well over the period, shrugging off Middle East tensions and inflation worries. Steady economic growth, healthy corporate earnings and ongoing AI investment continued to support markets. Many firms continued to beat expectations, which helped markets ride out the uncertainty.

Meanwhile, smaller companies began to catch up with their larger counterparts, as investors broadened their focus beyond the handful of mega-cap technology names that had dominated returns earlier in the year. Bond yields climbed higher over the period as persistent inflation concerns weighed on markets.

AI stayed a key theme across global equities and private markets, driven by heavy spending on data centres, chips and related infrastructure. The Nasdaq has gained roughly 13% since the beginning of the year, with strong results from big tech names keeping confidence in the sector high.

US markets hit fresh record highs in August on the back of strong tech earnings and continued AI enthusiasm. Sentiment cooled slightly towards the end of the period as rising oil prices added to inflation worries, although stocks remained close to record levels.

UK shares hit new highs in July, with the FTSE 100 rising to 10,951 points. Strong results and gains among energy stocks helped counter worries about the Middle East, and the index stayed near record territory through August and into September.

Asian markets rose in August, led by Japan and South Korea, as fresh enthusiasm for AI and semiconductors boosted tech stocks. European shares also put in a strong showing, supported by solid second-quarter earnings and broad gains across sectors.

Emerging markets also had a strong period, with investors drawn to attractive valuations and a weaker US dollar. Latin American markets performed well over the period, supported by resilient domestic demand and improving trade conditions.

Oil prices remained elevated as the Middle East conflict weighed on supply concerns, with Brent crude pushing above $100 a barrel in September. Gold also had a strong run, climbing almost 10% in August and pushing its yearly gains to fresh highs.

Interest rates and inflation

Renewed concerns over inflation have made policymakers more cautious about cutting interest rates. The conflict in the Middle East has pushed energy prices higher and increased uncertainty about the inflation outlook, with central banks reassessing the timing and pace of interest rate cuts.

US inflation remains stubbornly elevated, rising to 3.4% in August. Amid soaring prices, the Federal Reserve (Fed) hiked rates for the first time in three years by a quarter percentage point to a range of 3.75–4%.

Despite increasing price pressures, the Bank of England held borrowing costs at 3.75% for the sixth meeting in a row. The rate of UK inflation rose to 3.1% in the year to August, but underlying price growth remains stable.

Eurozone inflation rose from 2.9% in July to 3.2% in August. At the same time, core inflation, which excludes food and energy, eased to 2.4%. The European Central Bank (ECB) responded by raising its deposit rate by 0.25 percentage points to 2.5% in September.

Encouraging signs for global growth

The US labour market staged an unexpected rebound in August, reversing the weakness seen earlier in the summer. The economy added 162,000 nonfarm payroll jobs, nearly triple forecasts of around 56,000 and the strongest monthly increase since March. The labour force participation rate also rose to 61.6%, from 61.4% in July, while unemployment remained low at 4.1%.

Consumer spending has also held up despite cost-of-living pressures, supporting activity across the services sector. Business investment in equipment and advanced technology, which rose by nearly 10% in the first half of the year, has continued into the third quarter. Strong spending on AI infrastructure and data centres is also supporting high-tech manufacturing and productivity.

Andy Burnham became Britain’s new prime minister after winning the Labour leadership contest following Keir Starmer’s resignation. He has pledged to raise living standards through a 10-year economic plan focused on reindustrialisation, housing, infrastructure and essential utilities.

There are encouraging signs for the UK economy, despite ongoing headwinds. GDP grew 1.6% year on year in July, its fastest annual pace in 18 months, while monthly growth of 0.4% beat expectations of no growth. Consumer confidence reached a two-year high in August and private sector activity strengthened. Unemployment held at 4.9% for a fourth consecutive month in July, while regular pay growth remained at 3.5%.

The eurozone economy has performed better than expected, with GDP growing 0.6% in the second quarter after no growth in the first. Employment also increased, while business activity continued to expand through the summer. Manufacturing growth reached its fastest pace in more than four years in August, driven by the strongest increase in new orders since early 2022.

Germany also performed better in the first half of 2026 after several years of weak growth. Higher government spending on defence and infrastructure is beginning to support the wider economy and could provide further momentum over the coming year. Higher energy prices remain a risk, but growth and employment have strengthened more than expected.

China’s export sector has remained a major bright spot, driven by strong global demand for high-tech goods, advanced manufacturing and AI infrastructure. Exports rose by 25% year on year in August, beating most forecasts, while high-tech exports increased by more than 40%.

The global expansion of AI, semiconductors and computing infrastructure is supporting Chinese manufacturing, with investment in information services and integrated circuit production also growing strongly. Exports to the US also rebounded in August, helping push China’s trade surplus to a record $119.1 billion. Domestic price pressures remain subdued, reflecting weak demand, while policymakers are stepping up infrastructure spending to support growth as the year progresses.