Monthly Review and Outlook September 2026

Global equities declined during September, with higher bond yields and rising energy prices weighing on investor sentiment. While most regions delivered negative returns, emerging markets proved relatively resilient and outperformed developed markets.

• United States: US equities fell modestly during the month. Financials, materials and consumer discretionary companies were among the weaker areas of the market, while information technology held up relatively well. Investors continued to assess the implications of higher interest rates and their potential impact on economic growth and company earnings.
• Europe: Eurozone equities posted a negative return. Information technology and energy stocks outperformed, but most sectors moved lower. The European Central Bank raised its deposit rate by 25 basis points, reinforcing expectations that inflation remains a key concern for policymakers.
• United Kingdom: UK equities also declined during September. Energy was one of the strongest performing sectors, supported by rising oil prices, while weakness was more widespread across the rest of the market.
• Japan: Japanese equities fell slightly in local currency terms. Higher crude oil prices and expectations that major central banks may continue tightening monetary policy weighed on market sentiment despite relatively resilient economic conditions.
• Emerging Markets: Emerging market equities declined but outperformed developed markets. Taiwan, Brazil and South Korea were among the strongest performers, while Turkish equities came under significant pressure amid a liquidity crisis affecting domestic investment funds. Emerging markets continued to navigate the challenges of a stronger US dollar, rising bond yields and elevated energy prices.

Fixed income markets experienced another difficult month as government bond yields rose sharply across major regions.

Rising energy prices, resilient economic growth and renewed monetary tightening from central banks fuelled concerns that inflation may remain above target for longer than previously expected. As bond yields rise, bond prices typically fall, creating headwinds for investors.

Government bond markets were particularly sensitive to developments in energy markets. Escalating tensions in the Middle East and concerns over disruption to global oil supplies pushed Brent crude oil prices above $107 per barrel, driving higher inflation expectations and contributing to bond market weakness.

Central banks maintained a hawkish tone. In the United States, the Federal Open Market Committee raised interest rates by 25 basis points to between 3.75% and 4.00%. Policymakers indicated that further tightening may be necessary, reinforcing expectations that borrowing costs could remain elevated for some time.

The sell-off in government bonds was broad-based, although some regions faced additional pressures. French government bonds underperformed as investors became increasingly concerned about fiscal challenges, pushing 10-year yields to their highest levels since the global financial crisis.

Corporate bond markets also weakened. Investment grade credit spreads widened during the month, resulting in negative returns, with European markets lagging their US counterparts. High yield bonds experienced even greater pressure as heightened interest rate volatility reduced investor appetite for riskier areas of the market.

Commodities delivered strong positive returns during September, driven primarily by gains in energy markets.

Oil prices rose sharply as geopolitical tensions in the Middle East intensified. Concerns over potential disruption to shipping routes through the Strait of Hormuz and reported damage to key Saudi oil infrastructure increased fears about global supply, supporting higher prices across the energy complex.

The strength in energy markets helped lift broader commodity indices and was one of the key influences on both inflation expectations and wider market performance during the month.

Looking ahead, inflation, central bank policy and energy prices are likely to remain key drivers of market performance.

September highlighted the sensitivity of financial markets to changes in inflation expectations. Rising oil prices and resilient economic growth have prompted investors to reassess how quickly inflation may return to central bank targets and whether interest rates may need to remain elevated for longer.

While higher borrowing costs can create challenges for both companies and consumers, economic activity has generally remained resilient across many regions. This continues to provide support for corporate earnings, although the outlook varies across sectors and markets.

Geopolitical developments, particularly in the Middle East, remain an important area to monitor given their potential impact on energy prices, inflation and investor confidence. Any escalation could contribute to further volatility across both equity and bond markets.

Bond markets may continue to face pressure if inflation remains persistent, although higher yields are gradually improving the income available from fixed income investments. This could create opportunities for long-term investors as valuations become more attractive.

As always, short-term market movements are difficult to predict. Maintaining a well-diversified portfolio across asset classes, sectors and regions remains an important way to navigate uncertainty and stay focused on long-term financial goals.

Forecasts of future performance are not a reliable guide to actual results, neither is past performance a reliable indicator of future results. The value of investments and the income from them can fall as well as rise and are not guaranteed, and the investor might not get back their initial investment.

Any views expressed are our in‑house views as at end‑September 2026. Investment markets and conditions can change rapidly, and the views expressed should not be taken as statements of fact nor relied upon when making investment decisions. This content may not be used, copied, quoted, circulated or otherwise disclosed (in whole or in part) without our prior written consent.

Schroders Investment Management (SIM) provides investment management and advice services for Lloyds Wealth funds and portfolios respectively.

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