Nine months in: a year of surprises, and what it means for long-term investors
Markets have spent 2026 doing what they do best: taking people by surprise. A war in the Middle East, bond yields at levels not seen for a generation and an artificial intelligence boom that refuses to cool. The result is a year that has, so far, rewarded patient investors, though the ride has been bumpier than the headline numbers suggest.
Despite a weaker September, a global approach has again paid off. The MSCI World Index is up 13.5% so far this year, and emerging markets have done better still, up 21.2%. September was harder going for UK investors: bond yields rose, oil climbed and shares and gilts fell together, ending the third quarter on a softer note.
Leadership has been narrow, concentrated in technology and energy. Technology now accounts for 31.8% of the world index. In September only the technology and communication services sectors rose in the US, and a handful of very large companies continue to flatter the headline index while the average company has had a quieter year. US technology has returned over 30% this year, led by memory and semiconductor chip makers such as SanDisk and Micron, which is now one of the ten largest companies in the MSCI World Index after rising more than 1,400% over five years.
Energy has been the other standout performer over the year to date. The US-Iran conflict, now seven months old, has kept oil prices high, with Brent crude back above $100 a barrel and the average price of diesel hitting a record £2 a litre. The Bank of England expects inflation to rise to around 3.75% in the final quarter. UK investors have had some protection here: the UK market's larger weighting to energy companies has helped it hold up better than continental Europe.
The return of higher yields
The biggest story of the autumn has been the bond market. We entered 2026 with widely held expectations that central banks would keep cutting rates. Instead, many are now raising them. In September the Federal Reserve lifted rates to 3.75% to 4.00%, its first increase since 2023, while the European Central Bank and Bank of Japan also raised rates and the Reserve Bank of Australia tightened again.
The Bank of England held Bank Rate at 3.75%, but three of its nine members voted for a rise. The reason is inflation: UK CPI rose to 3.1% in August and is expected to climb further, with markets currently implying an 86% chance of a rise at November's meeting.
The effect on government bonds has been significant. In early October the UK 30-year gilt yield briefly touched 6%, its highest since 1998. Higher yields mean lower prices for existing bonds, which is why global government bonds are down c.2% year to date. The upside is that anyone buying bonds today does so at far more attractive yields than just a few years ago, but many investors remain on the sidelines, wary of buying while prices are still falling. Yields could rise further, and bond prices fall further, before they settle.
What this teaches us
Three lessons stand out. First, diversification does not mean every holding rises together: in September shares and bonds fell at the same time, a reminder that no single asset is a guaranteed safe haven. Second, concentration cuts both ways: when a few companies lead the market, index returns can look better than the average experience, and that can reverse quickly. Third, volatility is the price of long-term returns. This year has already seen a sharp early sell-off and a strong recovery, and investors who stayed the course have, so far this year, seen markets recover, though there is no guarantee this pattern will repeat.
What to watch in the weeks ahead
The year is set for an eventful finish. Chancellor John Healey delivers the first Budget of Andy Burnham's government on 28 October, a week after the latest inflation figures on 21 October. A busy run of central bank meetings follows: the Federal Reserve on 28 October, the European Central Bank on 29 October and the Bank of England on Bonfire Night, 5 November. Will they act to dampen inflation?
Budget speculation is rarely a reliable guide to what actually happens, so it is best to wait for the facts and tune out the noise as the day approaches.
As ever, this article is intended to inform you of market movements and the factors affecting your portfolio. Our long-term planning is designed to allow for periods like this, but if you have any questions, please contact your adviser.
Chartered Wealth Manager & Head of Investment Strategy
Important information
The value of investments can fall as well as rise and you may get back less than you invested. Past performance is not a guide to future performance. Tax treatment depends on individual circumstances and may change in future. Investments in overseas markets are exposed to currency movements, which can reduce or increase returns.
This communication is for information only and does not constitute personal advice. If you are unsure whether any action is right for you, please speak to your adviser. Companies are mentioned for illustration only and are not a recommendation to buy or sell.
Sources: index and sector returns are total returns in GBP, 1 January to 30 September 2026, MSCI & Vanguard. Micron five-year share price return to 30 September 2026, in USD, NASDAQ. Inflation figures: Office for National Statistics. Inflation forecast: Bank of England. Market-implied rate probability, gilt yields and oil prices: Trading Economics as at 30 September 2026. Market-implied rate probability, centralbank.watch as at 30 September 2026. Diesel prices, petrolprices.co.uk as at 30 September 2026.
