Author: Spencer Maynard Wealth Management

The quarter ending in September was a strong period for the global equity market, but this statement hides a lot of what was occurring under the bonnet. The global equity index was lifted in September mainly by the strong performance in the US market, while other regions delivered negative returns, reversing some of the strong gains we’d seen over the summer months.

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.

All in all, very mixed outcomes across and within different asset classes.

Global stocks broadly rose in August on the back of stronger corporate earnings across regions. Notably, technology and Artificial Intelligence (AI) related stocks rallied after experiencing a sharp sell-off in July. Surging cloud revenues helped Microsoft and Amazon report better-than-expected growth, and chip giant Nivida posted record- breaking quarterly revenues of $96bn, more than double what they generated in the same period last year.

The tech sector experienced some meaningful swings as investors grapple over whether the large capital expenditure that has been poured into these businesses will ultimately pay off in terms of the revenue it is expected to generate. We are starting to see those hyperscalers move from being free cash flow positive to free cash flow negative – now going through more cash than they earn – because of continued and substantial investment in AI infrastructure. Now the ‘existential threat from superintelligent AI’ has finally entered the mainstream conversation, a “pause” by the leading US AI firms will have a big impact on their growth prospects and those integral to the AI supply chain. This was perhaps demonstrated by the falling share prices across the sector this week.

Most equity regions posted gains in August although it is interesting to note that UK and European small caps lead the charge over the month.

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.

Overall, equity markets continued to climb in August as investors focussed on positive corporate earnings and continued growth driven by AI buildout globally. That said, there remains significant uncertainties around geopolitical conflicts and the impact these will have on inflation and global growth. Similarly, the uncertainty around how AI will shape markets and economies going forward is growing at a rapid pace.

July saw a real shift in investors’ focus across equity markets and regions. The month was marked by a sharp sell-off in technology and AI-related stocks. The sell off begun in Asia where semiconductor stocks tumbled over rising concerns about competition and the potential impact soaring RAM prices might have on the appetite for AI. Chinese firm, Moonshot AI, unveiled new models that narrow the performance gap with US systems at significantly lower costs. According to OpenRouter, Chinese models made up 46% of all token usage by US companies at the start of July, raising further question marks over the long-term prospects for American LLMs and the investments being made by big tech.

Investors have begun to question whether the capital expenditure that has been poured into this area of the market will ultimately pay off in terms of the revenue it is expected to generate. We’re starting to see hyperscalers move from being highly free cash flow positive to free cash flow negative as a result of continued and substantial investment in AI infrastructure. Research by Japanese finance newspaper, Nikkei Asia, also found that Meta, Oracle, Amazon, Microsoft and Alphabet have a combined $1.65tn in AI investment debt that they’ve been keeping off their official balance sheets. While technically not illegal, the worrying trend means these debts surpass their official balance sheet debts of $1.35tn. All of this meant that during the month, growth-oriented areas of the market sold off, while more traditional sectors such as financials and energy delivered strong returns as investors rotated into these areas.

The general shift in investors’ sentiment away from technology and AI benefited the UK market, which has greater exposure to traditional sectors such as banks, energy, mining and tobacco. The UK index delivered a positive return of 3.3%, while the US market declined by 1.6%. Other factors also contributed to market movements during the month, including the re-escalation of tensions between the US and Iran and investor uncertainty stemming from the lack of forward guidance from the Federal Reserve. Interest rates were kept on hold in the US, but this did not prevent bond yields from rising, with implications for long-term borrowing costs. Against the backdrop of concerns surrounding AI and technology stocks, Asian and Emerging Markets posted negative returns, while Europe and Japan were broadly flat. Across most regional equity markets, both at the sector and individual stock level, the month was characterised by a high degree of price volatility.

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%.

US yields moved higher amid concerns about the lack of forward guidance from the Federal Reserve following its most recent policy meeting. Although interest rates were left unchanged, uncertainty surrounding the future path of monetary policy remained elevated. Emerging market debt was among the weakest-performing fixed income sectors, declining by 3.2%, primarily due to rising US bond yields. Meanwhile, oil prices rose sharply amid renewed geopolitical tensions in the Middle East, particularly between the US and Iran.

Overall, July was characterised by a significant shift in investor positioning and market leadership, accompanied by heightened volatility across several sectors and individual stocks, particularly those with exposure to AI-related themes.

Market returns were mixed in June as investors navigated a complex environment combining de-escalation in the Middle East with uncertainty over the future of AI spending. Tensions between the US and Iran eased following the signing of a Memorandum of Understanding (MoU) which put a pause on the conflict and helped reopen the Strait of Hormuz. While a positive development, markets responded cautiously, with the flow of oil tankers remining significantly below pre-war norms.

In the midst of geopolitical tension, June saw SpaceX list on the US tech index at a record valuation of $1.8 trillion. The stock rallied to $ 2.1tn on its debut trading day, making Elon Musk the world’s first trillionaire. Whilst an apparent success with the IPO raising $75bn, the stock market listing has renewed concerns around elevated valuations in tech and AI related stocks. The AI capital expenditure (capex) theme has been a significant source of market volatility. Investors remain uncertain about whether unprecedented levels of investment in infrastructure and development will generate sufficient returns, while the timeline to profitability remains unclear.

Equity markets were mixed in a month that was characterised by a wave of sector rotation, with previous winners giving up gains in favour of market stalwarts. AI-related names gave back some of their gains while other sectors including healthcare, financials and industrials rallied. The tech dominated US stock market finished slightly negative (-0.2%) whereas value and small cap styles performed well during the month. Asia-ex Japan was the worst performing region (-1.7%) over the month as many AI beneficiaries (i.e. Taiwan Semiconductor, Samsung Electronics and SK Hynix) finished June lower.

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.

Oil prices reverted to pre-conflict levels post the US-Iran Memorandum of Understanding (MoU), which has helped to ease inflationary pressures to the benefit of interest rate sensitive sectors such as listed property (+3.1%) and infrastructure (+2.3%). Gold was one of the worst performing asset classes down -10.6% on the back of a stronger US dollar, reduced ‘safe haven’ demand post-de-escalation, and hawkish rate outlook. Gold has now fallen 25% from January all-time highs, with the retail money which flooded in to help fuel the rally in 2025 and first quarter 2026 starting to look elsewhere.

At the end of the month, we were hopeful that the MoU between the US and Iran would lead to an abrupt and lasting resolution but events over the last week have dashed those hopes. The unpredictability of both Trump and the Iranian regime have made markets particularly challenging to navigate, reinforcing the importance of remaining focused on underlying fundamentals.

In spite of the conflict in the Middle East, equity markets and risk assets delivered strong returns. The mood music seemed to be that a resolution was strongly favoured by both sides, but the conflict continued to roll on past its 100-day anniversary. Outside of this, markets were generally buoyed by the euphoria around artificial intelligence (AI) investments coupled with some strong fundamental earnings from many corporates in the US. “Magnificent Seven” firms, Amazon, Alphabet and Microsoft all demonstrated returns from their AI investments as their computing units benefited from the intense demand for AI infrastructure. Later in the month, the world’s most valuable company, Nividia, posted stronger than expected earnings with data centre revenue doubling in the last quarter. AI spending helped US GDP rise to 2% in the first quarter of 2026, however May’s reading wasn’t enough to stop US public debt exceeding US annual GDP for the first time since World War Two.

The best performing equity region for the month was Emerging Markets which posted a positive return of over 10%. However, when you start to dig a little deeper, across the Emerging and Asian countries the returns were very different. Again, the AI theme helped drive markets such as South Korea and Taiwan higher thanks to their role in the AI supply chain. However, China did not benefit and their equity market was negative for the month, down nearly 3% on the back of weak domestic sales and industrial production. The broad Asia equity index returned 1.4%, substantially less than the emerging market index. Though Europe has delivered mixed economic data and inflation has been stickier than expected, the region delivered a healthy equity return of nearly 6% on the back of the deescalation of tensions in the Middle East.

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 UK bond market – both UK gilts and corporate bonds – were the best performing of the bond markets, both posting positive returns of 1.9%. In contrast to the employment numbers in the US, here in the UK we saw unemployment unexpectedly rise to 5% and job vacancies fall to a five-year low. Alan Milburn’s independent interim report on young people and work also highlighted how opportunities for young people are declining at an alarming rate with one in six set to be NEET (Not in employment, education or training) within the next five years.

With the Bank of England trying to cope with inflationary pressures, it’s unlikely they’ll be able to cut rates in an attempt to drive jobs growth any time soon.

In general, May was a choppy month but one that ultimately proved fruitful for investors. Now that a memorandum of understanding has been agreed between the US and Iran, we might finally see an end to the conflict and the resumption of oil exports via the Strait of Hormuz. If we do, this could reduce inflationary pressures and improve growth prospects for the rest of 2026.