Market Commentary: 4 September 2026
Bond Market Under Pressure
- Stock markets (MSCI World Index) have gained almost 14% year-to-date.
- The FTSE World Government Bond Index has declined by 1% this year.
Please note that the content of this review should not be considered as investment advice or any form of recommendation. If you require investment advice, please do not hesitate to get in touch with a member of our qualified team.
Key Themes
Government bond yields have risen to fresh multi-decade highs this week, creating higher borrowing costs across many economies. Several factors have contributed to the move: the price of oil has risen again following an escalation in the US-Iran conflict, inflation appears to be stuck above central banks’ 2% target, and budget deficits in the US, UK and Japan are coming into renewed focus. Stocks are trading largely sideways amid this tricky backdrop.
UK
Mid- and small-cap stocks have fared best in the past month, making gains despite the FTSE 100 remaining flat. Listed recruiters have had a strong bounce, helped by cost-cutting measures and an improvement in the Asian hiring cycle. However, employment markets in the UK and Europe remain sluggish.1
Takeovers continue to be a major theme. In less than three years, over 150 UK-listed companies have received takeover bids worth a combined £165 billion. Most have left the market, while only 11 companies have joined through IPOs.2 As the domestic stock market continues to shrink, investors may increasingly need to look overseas in search of the best opportunities.
United States
The “Magnificent 7” technology firms (such as Microsoft, Amazon and Apple) have had far lower returns than the rest of the US stock market this year. This means 2026 could become only the third year in the last thirteen to see these dominant companies underperform. There is another unusual trend currently, as the level of correlation between US stocks has fallen to its lowest level in more than 35 years.3 The strongest areas include energy and computer hardware, while software stocks and those relying on consumer spending have struggled.
Europe
Inflation in the Eurozone rose to 3.3% in August, its highest level since 2024. Energy inflation spiked by 14% year-on-year, highlighting the damaging impact of the US-Iran conflict.4 This means the European Central Bank is now expected to raise interest rates to 2.5% this month – still materially lower than rates in the UK and US. It is notable that the Irish housing market remains buoyant, while the UK and US reports weak pricing and transaction growth.5
Asia & Emerging Markets
Indian stocks continue to have a tough time. After rising very strongly from 2020 to 2024, the MSCI India Index sits at the bottom of the emerging markets leaderboard year-to-date, with a 9% decline. The country is just as dependent on energy imports as many European economies, while its software and customer service outsourcing industries face disruption from AI models. This has led to its worst stretch of underperformance in 30 years.6
Bonds
The US federal debt reached $40 trillion in August, after doubling in a decade, and now stands at 125% of GDP.7 Investors are therefore focusing on government spending once again, with the US budget deficit expected to hit $2 trillion this year alone. The dollar has declined in recent weeks, while the 30- government borrowing cost has spiked to the highest level in a generation in both the US (5.3%) and the UK (5.8%). The new Labour government cannot afford to unsettle the gilt market in its budget announcement on 28 October.
Points of Interest
With many developed economies struggling to deal with massive amounts of public debt, the “debasement trade” has come to life again. This rests on the theory that governments will allow inflation to run hot while increasing the supply of dollars, euros, pounds and yen in order to repay their debt. The price of real assets then rises as the fiat currency loses value. To that end, gold has risen 12% in six weeks and Bitcoin has bounced 30% after declining for a year.
Summary
Taking a big-picture view, we remain on track for the fourth straight year of double-digit returns from major stock markets. There was an unpleasant reset in 2022, when markets adjusted to the end of the low-inflation, low-interest-rate period. Since ChatGPT launched in November of that year, investors have embraced a new bull market which is increasingly based on excitement about the productivity gains that AI could bring. How long the bull market lasts – and whether it is broken by bond market stress or some other dynamic – remains to be seen. The music is still playing, for the time being.
Note: Past Performance Is Not A Reliable Indicator Of Future Performance
Sources may be found online here, or provided on request.
GWA Portfolio Performance
Please note that any performance figures are provided for information purposes only. The performance of your own investments may deviate from the returns shown below due to a number of factors, including product charges, the timing of contributions & withdrawals and portfolio rebalancing. Performance relates to the GWA Portfolios only; if you hold other investments performance will be different.
MGTS Qualis Funds
Please note that this should not be considered as investment advice or any form of recommendation or inducement to invest. If you require investment advice, please contact your financial adviser.
The MGTS Qualis Funds launched in June 2023 and are managed by our wholly owned subsidiary, GWA Asset Management Ltd.
Fund Positioning
The MGTS Qualis Defensive Fund invests mainly in fixed income funds, which hold government bonds and corporate bonds. The fund also invests in other assets, such as property and infrastructure.
The MGTS Qualis Growth Fund invests solely in equities and is focused upon geographic diversification. The fund has a broad range of investments across the UK, US, Europe and Asia.
For further information including the latest Fund Factsheets, please visit qualisfunds.co.uk
