Views at a glance – September 2026
Higher bond yields are a headwind for stock markets, but resilient economic growth and strong earnings should keep the rally on track.
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Can equities continue to shrug off bond market pressure?
The global bond market sell-off has continued into September, with yields rising across markets and maturities. This year's moves are significant, but still well within the range experienced over the past decade. What makes the current episode potentially more concerning is that longer-dated yields appear to be breaking out of long-term ranges, prompting concern from policymakers. The latest indication came from the US Treasury, which announced an increase in the size of its periodic bond repurchase operations. Equities appear largely untroubled by these developments. The NASDAQ has yet to surpass its June peak, despite exceptionally strong technology earnings, suggesting a degree of caution. By and large, however, optimism remains intact. In our view, provided the rise in bond yields stays orderly, it need not derail the broader equity market rally.
The Strait of Hormuz and Jackson Hole
The peace agreement between the US and Iran has broken down, with a return to intermittent hostilities between the two countries. Oil flows through the Strait of Hormuz remain limited. Brent crude prices ended August almost 50% higher than at the start of the year and some refined products have seen more dramatic increases. This is adding to domestic inflationary pressures in major economies. These pressures were the focus of Fed Chair Kevin Warsh's speech at the latest central bank symposium in Jackson Hole, Wyoming. Warsh noted that over the past six months, 49% of the goods and services in the Fed's preferred inflation basket had experienced annualised price increases above 3%. Short-dated bond yields rose in response to his concern over inflation, while yields on 30-year bonds fell. The divergence suggests investors were reassured by the Fed's determination to tackle inflation. It may also indicate that at least some of the recent rise in long-dated yields reflects concerns about policy credibility.
The profit story continues
By the end of August, almost all of the companies in the S&P500 had reported second quarter earnings. Excluding gains on AI-related investments, year-on-year earnings growth is running at 33% - the strongest underlying result since 2021.* Technology remains the key driver, with AI infrastructure stocks accounting for roughly a third of the profit growth. However, as in the first quarter, the growth in profits was not just a technology story, with seven of the 11 major sectors recording double-digit earnings growth. Nvidia’s latest results provided further evidence of exceptional AI infrastructure demand, supporting the rally in semiconductor and AI-linked stocks. However, we have seen an even bigger rally in traditional software stocks in recent weeks, reversing the trend in force for much of the year. The sector’s recovery points to the importance of an active approach to technology in today’s market. While there will be disruption from AI, where and when it will materialise is not yet clear.
Positioning
Strong earnings growth and a supportive economic backdrop underpin our continued overweight position in equities. We have taken advantage of strong recent performance to trim our exposure, while remaining fully weighted. This reflects our view that the outlook for inflation and interest rates, as well as setbacks on the path to AI adoption, could lead to further volatility over the coming months. Within equities, we continue to see scope to benefit from an active approach, tilting portfolios towards sectors with the strongest earnings growth. We remain cautious on fixed income, given our view that more attractive opportunities exist elsewhere. However, we see opportunities in selected government bond markets, and the current sell-off may create more.
Key
🟢 Positive
🔵 Positive/Neutral
⚪ Neutral
🟠 Negative/Neutral
🔴 Negative
🔼 Up from last month
🔽 Down from last month
Outlook
Economics |
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Valuations |
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Sentiment |
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Risks |
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Asset Classes
Asset classes | Current positioning | Current views |
|---|---|---|
Equities | 🔵 | Equities are supported by a strong earnings cycle and a resilient economy, although risks remain. Global equities remain fundamentally strong, as technology and AI-driven capital expenditure have driven earnings upgrades. However, however the sustainability of this spend, together with still high geopolitical uncertainty warrant a prudent approach to risk management. |
Bonds | 🟠 | Government bond yields are more attractive than in the past decade, but inflation risks and fiscal sustainability are key concerns. Market pricing for rate hikes looks excessive in the UK, opening the door for additional capital gains. Credit is less attractive from a valuation perspective given tight spreads. |
Alternatives | ⚪ | We prefer assets with lower correlation to traditional markets, given geopolitical uncertainty. This includes gold, commodities, and selective absolute-return strategies despite the higher hurdle from cash and bond yields. These provide diversification given risks around government debt and longer-dated bonds. |
Cash | ⚪ | Cash yields remain attractive versus history. Cash provides us with the flexibility to allocate into tactical opportunities that arise during market volatility. |
Equities
Asset | Current positioning | Current views |
|---|---|---|
Equities | 🔵 | Equities are supported by a strong earnings cycle and a resilient economy although risks still remain. Global equities remain fundamentally strong, as technology and AI-driven capital expenditure have driven earnings upgrades. However the sustainability of this spend, together with still high geopolitical uncertainty warrant a prudent approach to risk management. |
US | 🟠 | US growth has remained resilient, supported by consumer spending, fiscal support, and AI investment. However, fiscal policy elsewhere and the broadening of the AI theme beyond Tech may create opportunities beyond the US. Within our US exposure, we have a tilt towards both small/ medium sized companies and higher quality companies. |
Europe | 🟠
| Europe faces challenges from China’s excess supply and heightened political risk. Valuations are slightly above historical levels and earnings expectations remain comparably weaker. However, the most recent earnings season has been strong, and upwards revisions bear close watching. |
Japan | 🔵 | Earnings are improving, despite slightly elevated valuations. Strong demand, foreign inflows, governance reforms and new leadership support a more durable cycle. Monetary policy is normalising but remains at accommodative levels. Intervention to weaken the Yen is all else equal beneficial for Japanese equities. |
Asia/ Emerging markets | ⚪ | Valuations and the earnings outlook remain attractive and Asia remains a key player in the AI buildout, however we acknowledge that markets have become increasingly concentrated, particularly within Technology and the Taiwanese and Korean markets. |
UK | 🔵
| UK valuations remain attractive relative to both developed and emerging markets, despite subdued investor sentiment. The region constitutes a diversifier that tends to be well placed in a stagflationary shock given its more defensive sector composition and energy exposure. |
Equity sectors and themes
Asset | Current positioning | Current views |
|---|---|---|
Equities | 🔵 | Equities are supported by a strong earnings cycle and a resilient economy although risks remain. Global equities remain fundamentally strong, as technology and AI-driven capital expenditure has driven earnings upgrades; however the sustainability of this spend, together with still high geopolitical uncertainty warrant a prudent approach to risk management. |
Global Tech | 🔵 | Despite concerns over the sustainability of capital expenditure and elevated expectations, fundamentals remain robust, supported by a strong earnings season and continued demand for technology. |
US Quality | 🔵 | Companies exhibiting higher quality characteristics can provide resilience against higher inflation as well as practical diversification against an AI disappointment scenario. |
Healthcare | ⚪ | Healthcare is on track to deliver respectable earnings for 2026 but relatively weaker than the broader market. Relative valuations versus the market have become less attractive. |
Bonds
Asset | Current positioning | Current views |
|---|---|---|
Bonds | 🟠 | Government bond yields are more attractive than in the past decade, but inflation risks and fiscal sustainability are key concerns. Market pricing for rate hikes looks excessive in the UK, opening the door for additional capital gains. Credit is less attractive from a valuation perspective given tight spreads. |
Government bonds | 🔵 | While higher US borrowing needs and inflation pose a risk to bonds, elevated yields provide some degree of compensation. Japanese and UK government bonds look particularly compelling. |
Credit | ⚪ | Credit spreads remain tight versus history, but fundamentals are still reasonable. We prefer shorter-duration credit, including high yield. We also remain positive on high-quality asset-backed securities where valuations look attractive. |
Inflation-linked | 🟠 | Markets have priced in the inflationary effect of the Iran war on global economies. Real yields remain in positive territory on long dated inflation linked bonds, but valuations do not look attractive relative to nominal government bonds. |
Emerging markets | ⚪ | Emerging market growth remains resilient, supported by firmer activity and easier financial conditions, though fundamentals vary across countries and tariffs remain a headwind. |
Alternatives
Current positioning | Current views | |
|---|---|---|
Alternatives | ⚪ | We prefer assets with lower correlation to traditional markets given geopolitical uncertainty. This includes gold, commodities, and selective absolute-return strategies despite the returns available from cash and bonds. These provide diversification given risks around government debt and longer-dated bonds. |
Key holdings | ||
Absolute return | Trend-following, equity market neutral and global macro to maintain diversification during macro uncertainty. | |
Liquid private real assets | Attractive revenue streams, especially in renewables, infrastructure and specialist property. | |
Commodities | Provide useful diversification, supported by structural demand for industrial metals linked to the energy transition and exposure to higher energy prices amid ongoing Middle East tensions. | |
Gold | Hedge against growth/inflation shocks. Despite recent volatility, gold remains attractive given geopolitical tensions, central bank buying, and rising debt levels. | |
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This article is issued by Schroder Wealth Management (US) Limited, a firm authorised and regulated by the Financial Conduct Authority and registered as an investment adviser with the US Securities and Exchange Commission. Registered office at 1 London Wall Place, London EC2Y 5AU. Registered number 10761882 England. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Schroder Wealth Management (US) Limited unless otherwise stated. For your security, communications may be recorded and monitored.
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