US Treasury increases bond repurchase operations in the United States; equities largely untroubled, rally intact.

Views at a glance – September 2026

Higher bond yields are a headwind for stock markets, but resilient economic growth and strong earnings could keep the rally on track.

Can equities continue to shrug off bond market pressure?

The global bond market sell-off has continued into September, with yields rising across markets and maturities. This year’s moves are significant, but still well within the range experienced over the past decade. What makes the current episode potentially more concerning is that longer-dated yields appear to be breaking out of long-term ranges, prompting concern from policymakers. The latest indication came from the US Treasury, which announced an increase in the size of its periodic bond repurchase operations. Equities appear largely untroubled by these developments. The NASDAQ has yet to surpass its June peak, despite exceptionally strong technology earnings, suggesting a degree of caution. By and large, however, optimism remains intact. In our view, provided the rise in bond yields stays orderly, it need not derail the broader equity market rally.

The Strait of Hormuz and Jackson Hole

The peace agreement between the US and Iran has broken down, with a return to intermittent hostilities between the two countries. Oil flows through the Strait of Hormuz remain limited. Brent crude prices ended August almost 50% higher than at the start of the year and some refined products have seen more dramatic increases. This is adding to domestic inflationary pressures in major economies. These pressures were the focus of Fed Chair Kevin Warsh’s speech at the latest central bank symposium in Jackson Hole, Wyoming. Warsh noted that over the past six months, 49% of the goods and services in the Fed’s preferred inflation basket had experienced annualised price increases above 3%. Short-dated bond yields rose in response to his concern over inflation, while yields on 30-year bonds fell. The divergence suggests investors were reassured by the Fed’s determination to tackle inflation. It may also indicate that at least some of the recent rise in long-dated yields reflects concerns about policy credibility.

By the end of August, almost all of the companies in the S&P500 had reported second quarter earnings. Excluding gains on AI-related investments, year-on-year earnings growth is running at 33% - the strongest underlying result since 2021.* Technology remains the key driver, with AI infrastructure stocks accounting for roughly a third of the profit growth. However, as in the first quarter, the growth in profits was not just a technology story, with seven of the 11 major sectors recording double-digit earnings growth. Nvidia’s latest results provided further evidence of exceptional AI infrastructure demand, supporting the rally in semiconductor and AI-linked stocks. However, we have seen an even bigger rally in traditional software stocks in recent weeks, reversing the trend in force for much of the year. The sector’s recovery points to the importance of an active approach to technology in today’s market. While there will be disruption from AI, where and when it will materialise is not yet clear.

Strong earnings growth and a supportive economic backdrop underpin our continued overweight position in equities. We have taken advantage of strong recent performance to trim our exposure, while remaining fully weighted. This reflects our view that the outlook for inflation and interest rates, as well as setbacks on the path to AI adoption, could lead to further volatility over the coming months. Within equities, we continue to see scope to benefit from an active approach, tilting portfolios towards sectors with the strongest earnings growth. We remain cautious on fixed income, given our view that more attractive opportunities exist elsewhere. However, we see opportunities in selected government bond markets, and the current sell-off may create more.

🔼 Up from last month

🔽 Down from last month

Global growth, particularly in the US, has remained solid. The US consumer has held up well but risks are to the downside as the effect of tax rebates fades and higher energy prices linger.

AI investment is becoming an increasingly important component of US growth, contributing approximately 1% to overall GDP growth.

Inflation remains too high for comfort for central banks, especially in the US, where domestic price pressures are showing little signs of abating.

We expect to see central bank divergence, with some forecasts to increase policy rate this year with others expected to stay on hold.

Earnings remain strong, led by technology and AI companies, supporting equity valuations.

Government bond yields are high relative to recent history, and longer-dated bond yields remain elevated globally.

Credit spreads – the difference in yield vs government bonds – remain expensive relative to history however all in yields are attractive.

Investor positioning remains heavily tilted towards equities.

Following from July lows, the volume of stocks rising vs falling has increased, indicating improving market breadth.

We have seen flows go back into gold as concerns over the level of US debt and rising bond yields come into focus.

A continued re-escalation of the US-Iran war will likely see higher energy prices and inflation, dampening global growth if it were to last for extended periods of time.

The US, and to an even greater extent, Asian equity markets are concentrated in tech stocks.

An AI capex reversal could weigh on consumer spending, employment, and sentiment.

UK and US government yields remain elevated, reflecting fiscal concerns, higher real yields and policy uncertainty, with political developments adding to longer-term risks.

Equities are supported by a strong earnings cycle and a resilient economy, although risks remain.

Global equities remain fundamentally strong, as technology and AI-driven capital expenditure have driven earnings upgrades. However, however the sustainability of this spend, together with still high geopolitical uncertainty warrant a prudent approach to risk management.

Government bond yields are more attractive than in the past decade, but inflation risks and fiscal sustainability are key concerns.

Market pricing for rate hikes looks excessive in the UK, opening the door for additional capital gains. Credit is less attractive from a valuation perspective given tight spreads.

We prefer assets with lower correlation to traditional markets, given geopolitical uncertainty.

This includes gold, commodities, and selective absolute-return strategies despite the higher hurdle from cash and bond yields. These provide diversification given risks around government debt and longer-dated bonds.

Cash yields remain attractive versus history.

Cash provides us with the flexibility to allocate into tactical opportunities that arise during market volatility.

Equities are supported by a strong earnings cycle and a resilient economy although risks still remain.

Global equities remain fundamentally strong, as technology and AI-driven capital expenditure have driven earnings upgrades. However the sustainability of this spend, together with still high geopolitical uncertainty warrant a prudent approach to risk management.

US growth has remained resilient, supported by consumer spending, fiscal support, and AI investment. However, fiscal policy elsewhere and the broadening of the AI theme beyond Tech may create opportunities beyond the US. Within our US exposure, we have a tilt towards both small

medium sized companies and higher quality companies.

Europe faces challenges from China’s excess supply and heightened political risk. Valuations are slightly above historical levels and earnings expectations remain comparably weaker. However, the most recent earnings season has been strong, and upwards revisions bear close watching.

Earnings are improving, despite slightly elevated valuations. Strong demand, foreign inflows, governance reforms and new leadership support a more durable cycle. Monetary policy is normalising but remains at accommodative levels. Intervention to weaken the Yen is all else equal beneficial for Japanese equities.

Valuations and the earnings outlook remain attractive and Asia remains a key player in the AI buildout, however we acknowledge that markets have become increasingly concentrated, particularly within Technology and the Taiwanese and Korean markets.

UK valuations remain attractive relative to both developed and emerging markets, despite subdued investor sentiment. The region constitutes a diversifier that tends to be well placed in a stagflationary shock given its more defensive sector composition and energy exposure.

Equities are supported by a strong earnings cycle and a resilient economy although risks remain.

Global equities remain fundamentally strong, as technology and AI-driven capital expenditure has driven earnings upgrades; however the sustainability of this spend, together with still high geopolitical uncertainty warrant a prudent approach to risk management.

Despite concerns over the sustainability of capital expenditure and elevated expectations, fundamentals remain robust, supported by a strong earnings season and continued demand for technology.

Companies exhibiting higher quality characteristics can provide resilience against higher inflation as well as practical diversification against an AI disappointment scenario.

Healthcare is on track to deliver respectable earnings for 2026 but relatively weaker than the broader market. Relative valuations versus the market have become less attractive.

While higher US borrowing needs and inflation pose a risk to bonds, elevated yields provide some degree of compensation. Japanese and UK government bonds look particularly compelling.

Credit spreads remain tight versus history, but fundamentals are still reasonable. We prefer shorter-duration credit, including high yield. We also remain positive on high-quality asset-backed securities where valuations look attractive.

Markets have priced in the inflationary effect of the Iran war on global economies. Real yields remain in positive territory on long dated inflation linked bonds, but valuations do not look attractive relative to nominal government bonds.

Emerging market growth remains resilient, supported by firmer activity and easier financial conditions, though fundamentals vary across countries and tariffs remain a headwind.

We prefer assets with lower correlation to traditional markets given geopolitical uncertainty.

This includes gold, commodities, and selective absolute-return strategies despite the returns available from cash and bonds. These provide diversification given risks around government debt and longer-dated bonds.

Trend-following, equity market neutral and global macro to maintain diversification during macro uncertainty.

Attractive revenue streams, especially in renewables, infrastructure and specialist property.

Provide useful diversification, supported by structural demand for industrial metals linked to the energy transition and exposure to higher energy prices amid ongoing Middle East tensions.

inflation shocks. Despite recent volatility, gold remains attractive given geopolitical tensions, central bank buying, and rising debt levels.

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