On the surface, global equity performance appeared benign in September (MSCI World -1.2%, S&P 500 -0.3%), though the reality was tougher for most investors. A small cohort of AI beneficiaries skewed the headline numbers. Chipmakers Intel (+34%), AMD (+30%), Marvell (+25%) and Micron (+11%) added almost 1% to the S&P 500’s September performance. Meta (+27%) had its best month since 2013, adding 0.5% to the S&P 500 as investors were surprised by news of the rapid adoption of its Muse AI personal agent. Perhaps the best illustration of how many stocks struggled was the S&P 500 Equal Weight Index (-4.8%), showing that, on average, the 500 largest US-listed companies were down almost 5%, vs the S&P 500 Market-Cap-Weighted Index (-0.3%). Financials were amongst the worst performers (S&P 500 Financials -7.2% MoM), with investment banks Goldman Sachs, Bank of America and Morgan Stanley all down 12% as CEOs warned that trading and investment banking fees would be underwhelming in 2H26, with limited activity ahead of US midterm elections in November.
Rising developed market (DM) bond yields were a headwind for equity sectors associated with strong dividend yields. The high-yielding Real Estate (-6.1%), Utilities (-5.9%) and Consumer Staples (-3.3%) sectors were amongst the worst performing in the S&P 500. The emerging market (EM) equity index also appeared surprisingly resilient (MSCI EM -0.7%), though it too was flattered by chip stocks (SK Hynix +7%, Samsung +6% and TSMC +3%). At a country level, the only EM index ending the month in positive territory was Brazil (+5%), with stocks boosted by political and commodity tailwinds. Polls showed that former Brazilian president Jair Bolsonaro was closing in on incumbent Lula da Silva ahead of the country’s October elections. Chinese shares were amongst the laggards again, particularly those listed offshore, with US-listed Chinese companies (-6%) having lost almost a quarter of their market cap YTD.
It was also a tough month for bond investors as bond yields climbed to their highest level in over 20 years. The US government’s 10-year borrowing rate pushed above 5% p.a. for the first time since before the global financial crisis (GFC), climbing 0.5% to end September at 5.3% p.a. Part of the increase was a function of the 0.25% rate hike that the US Federal Reserve (Fed) delivered at its September meeting. Much of the remaining spike reflected investor expectations that the Fed will need to deliver another three hikes of 0.25% each over the coming months to fight inflation, which has largely been driven by elevated energy prices as the US war with Iran drags on. Brent crude oil ended the month 14% higher at US$103/bbl, and the US dollar was stronger against most currencies in September (US Dollar Index +2%).
