Monthly Investment Briefing: Geopolitics, Policy and Market Divergence

September 2026…

September proved a challenging month for markets. Renewed flare-ups in the US-Iran conflict pushed oil prices sharply higher, central banks turned more hawkish and government bond yields climbed to multi-year highs. Equity leadership narrowed further, with most stocks falling as investors crowded into technology.

Geopolitics, Policy and Market Divergence…

• Iran and Oil: Renewed attacks on shipping and energy infrastructure took Brent crude to $109 per barrel early in the month, before easing to around $97 as Middle East exports recovered.

• Central Banks Turn Hawkish: The Federal Reserve raised rates by 0.25% to a range of 3.75% to 4.00%, its first increase since 2023. The ECB raised its deposit rate to 2.5%, while the Bank of England held at 3.75%, with three members voting for a hike.

• Energy-Driven Inflation: US headline inflation held at 3.4% in August, while core inflation fell to 2.4%. UK CPI rose to 3.1%, with motor fuels the largest contributor. This is clearly visible on UK forecourts, where the average price of diesel closed in on £2 per litre in late September, almost 57p higher than at the start of the US–Iran conflict in February.

• Bond Market Sell-off: The 10-year Treasury yield rose almost 0.5% over the month to around 5.3%, the highest since 2007, while the 10-year gilt yield climbed to around 5.4%, squeezing UK fiscal headroom.

• Narrow Equity Leadership: The S&P 500 fell 0.5% and the Dow 4.3%, while the Nasdaq rose 1.9%. Technology was the only positive S&P 500 sector, with around three-quarters of its constituents falling. Meanwhile, the FTSE 100 fell around 1.7%, its second consecutive monthly decline, as rising gilt yields and Budget uncertainty weighed on UK sentiment.

The UK budget on the 28th of October, could stabilise gilts if the fiscal package is credible. While the US midterms follow on the 3rd of Novemebr, with a divided congress the most likely outcome.

Outlook…

The UK Budget on the 28^th October could help stabilise gilts if the fiscal package is credible, while the US midterms follow on the 3^rd November, with a divided Congress the most likely outcome. Softer PCE data has slightly eased Fed hike expectations, although oil remains the key swing factor for inflation. Seasonally, the final quarter has historically been the strongest of the year for equities, though we expect volatility to persist.

Portfolio Activity…

As September is historically one of the weaker months for markets, we anticipated a tougher backdrop and had already completed our portfolio gardening in August, as part of our risk management. With geopolitical tensions flaring again and further headwinds approaching including the UK Budget and the US midterm elections, we expect volatility to continue into October and preferred to hold our positioning rather than chase short-term moves. We recently sold Persimmon after a strong share price recovery and adding to dry powder, leaving portfolios well placed to act as opportunities arise.

Planned Purchases…

We continue to stalk three high-conviction ideas that play into our core themes as we await our target entry prices:

• Technology: A global leader in the semiconductors powering artificial intelligence, central to the ongoing build-out of AI infrastructure.

• Divided World and Energy Transition: A UK engineering group with strong positions in civil aerospace and defence, and an emerging role in small modular nuclear reactors.

• Demographics: A US pharmaceutical company at the forefront of obesity and diabetes treatments, conditions set to become more prevalent as populations age.

Portfolio Positioning…

We enter October with portfolios slightly below their equity targets and a healthy level of liquidity in place. With geopolitical and inflationary pressures still elevated and the UK Budget and US midterms fast approaching, we will continue to act selectively, using any periods of volatility to build positions in our highest-conviction ideas while balancing opportunity with appropriate caution as the picture develops.