Overview
Introduction
September brought an end to the third quarter, and saw the continuation of it’s themes, geopolitical tensions and monetary policy tightening. Central banks on both ends of the Atlantic tightened. The European Central Bank raised its three key rates: deposit facility, main refinancing operations, and the marginal lending facility, by 25 basis points (European Central Bank, Monetary Policy Decisions, 3/10/26). The Federal Reserve raised their target range to 3.75%-4%, the first hike since 2023 (CNBC, Federal Reserve, 3/10/26). These moves highlighted the end of the quarter in which most developed-market central banks raised policy rates. Trade tensions also escalated, as President Donald Trump signed five proclamations that banned certain Canadian imports and made detrimental changes to existing tariffs.
Despite these headwinds, the global economy continued to prove its resilience. The US flash composite PMI rose to 58.4 in September, its strongest reading since July 2021, and a continuance of monthly growth (Trading Economics, United States, 3/10/26). Additionally, the eurozone composite also rose to 53.1, marking its strongest level since April 2023 (JPMorgan, Weekly Market Recap, 3/10/26). The US continued to be the core driver of growth, supported by business investment, AI-related capital spending, and a firming labour market. Consumer spending, while not as prominently, also held up, supported by household savings.
Equity and Bond markets moved inversely. In late September the S&P 500 was less than half a percent below its record close, supported by strong earnings, which have risen heavily since the end of June. Earnings estimates for 2026 climbed, particularly in the States and Emerging markets, which in turn caused valuations to fall, even though prices held near their highs. Bonds sold off sharply, as the 10-year Treasury yield exceeded 5%, marking its highest level since 2007 (CNBC, U.S. 10 Year Treasury, 3/10/26). This was caused by renewed pressure on energy prices, persistent inflation and further policy tightening. To aggravate an already tense environment, government debt has seen weak demand for its recent issuances. Bond supply has been pushed to high levels as technology companies continue to increase their borrowing to finance the AI infrastructure build out, with estimates that in 2027 it will increase further.
Commodities finished the month and quarter strong, mainly due to energy prices, as talks stalled between the US and Iran. September brought renewed fears, after the Memorandum of Understanding (MOU) expired in August, forcing markets to once again price in the risk of global conflict. Gold fell, under pressure from rising interest rates.
Stocks & Commodities
Equities ended with moderate selling pressure in September, and the AI trade made a resurgence. Most of the global MSCI indices ended the month slightly down, except for MSCI Japan, which ended with a 1.6% gain, in USD terms. The US and Emerging Markets outperformed Canada and Europe due to AI related composition (MSCI index factsheets 30/09/26).
Over the quarter, we saw a theme of strong earnings and a stable global economy. Profit growth came primarily from technology and energy with banks also contributing, pushing market cap weighted indices further towards those industries. This overrode concerns about geopolitics and tightening central bank policy. Earnings forecasts rose faster than share prices, with the US and emerging markets at the forefront. As a result, valuations became cheaper across almost every region.
Japanese Markets outperformed their global peers. The Japanese MSCI index returned 1.6% in USD (MSCI index factsheet, 6/10/26) but was flat in local currency, showing the depreciation of the Yen over the month. The heavier tech weighted Nikkei 225 returned 0.66% over September, compared to the TOPIX which returned 0.5% in USD (Investing.com, Nikkei 225 Historical Data, 3/10/26; S&PGlobal, Japan Dashboard, 3/10/26), highlighting AI being the driving force.
Over the quarter, Japanese companies also displayed strong earnings growth, along with accelerating share buy backs. Positive governance reforms within companies also added to a supportive business landscape. The Nikkei 225 recovered following a massive dip in July, largely caused by a sell-off in AI and semiconductor stocks. Because of this, the index finished the quarter negative, underperforming the TOPIX, which ended up 3.8% (S&PGlobal, Japan Dashboard, 3/10/26).
US returns for the month were also driven by AI. The Nasdaq 100 returned 3.3%, outperforming the rest of the major US indices due to a heavy weighting in technology and communication services sectors (Nasdaq, September 2026 Review & Outlook, 3/10/26). These sectors ended with a positive gain around 4.5%. They were the only sectors showing positive returns for the month.
Over the quarter, the major US indices set a series of record highs. The S&P 500 ended the quarter up 2.3% and the Nasdaq ended up 2.6% (Nasdaq, September 2026 Review & Outlook, 3/10/26). Investment inflows rotated from semiconductors into hyperscalers and under appreciated software companies.
Canadian equities fell short of the U.S., finishing the month negative. The S&P/TSX index fell 2.6% over September and 1.6% during the quarter, primarily caused by losses in communication services, let by selling pressure from Telus due to the elimination of it’s DRIP program, and other financial concerns. Broader pressure from intense competition in the Canadian wireless market also weighed on other Canadian telecom company valuations. (Investing, S&P/TSX Composite Index, Historical Data, September 29, 2026). Inline with other regions, technology was a bright spot, finishing the month up 3.5%, despite bond yields rising and trade tensions escalating with the U.S. (National Bank, Asset Allocation Strategy, 3/10/26). Analysts remain cautiously constructive on Canada’s outlook through the remainder of 2026, supported by infrastructure spending, resilient energy fundamentals, growing LNG export capacity, and increased investment in critical minerals and mining projects.
Emerging markets followed a similar story, remaining relatively flat over the month. The MSCI Emerging markets index returned -0.5% in September, and 0.2% over the quarter (MSCI Index Factsheet, 6/10/26), despite a strong first half of the year. The tech-heavy Asian markets continued to climb due to AI demand amidst headwinds of rising yields and elevated oil prices. The region experienced selling pressure at the beginning of the quarter from a chip sell-off, however Korea’s KOSPI shifted back into a bull market following renewed spending on AI in August. Over September, Asian Emerging Market’s showed strong trade and manufacturing data, with PMI reports coming in over 50, supported by continued strong tech exports.
European equities trailed behind their global peers as investors doubted European companies’ abilities to match the earnings momentum seen globally. Additionally, the worry of a rate hike from the European Central Bank (ECB) made investors question the effect of rising yields on growth and equity valuations. The MSCI Europe ex-UK fell 2.5% in September and 1.3% over the quarter, in local currency, as a result (MSCI, MSCI Europe ex-UK Index Factsheet, 3/10/26). Despite the improving growth outlook and increased fiscal spending, especially in defence and infrastructure, investors concentrated on near-term profit growth and AI-related investment opportunities, areas where Europe has less direct exposure compared to the U.S and Asia.
The UK held up much better compared to the rest of the Europe. Despite a downturn in September resulting in a 1.6% decline, the UK FTSE All-Share gained 1.67% over the quarter (London Stock Exchange, FTSE All-Share, 3/10/26). This was supported by a greater exposure to financials, energy and commodity-related sectors with attractive valuations and dependable dividends.
The Bloomberg Commodity index delivering 0.3% for September, and 16% over the quarter. In comparison, the heavier energy weighted S&P GSCI Commodity index returned a higher 4.8% for the month and 25.1% for the quarter, showcasing the attribution of energy in the recent strength of commodities. (Investing, S&P GSCI Commodity Total Return, Historical Data, 3/10/26; Bloomberg, Bloomberg Commodity Index, 3/10/26). Brent Crude spiked over $108 per Barrel several times in September (Trading Economics, 6/10/26), as talks between the US and Iran stalled. There were renewed fears for global oil supply after the Memorandum of Understanding (MOU) expired in August, forcing markets to re-price an escalation of global conflict. Meanwhile, gold fell under pressure due to rising interest rates following a rate hike, the first since 2023, from the new Chair of the Federal Reserve.
Fixed Income
The bond market faced downward pressure, as inflation remained elevated and the global economy remained resilient over the quarter. This forced bond investors to speculate on how high rates would need to climb to tame inflation.
Long-term government bonds felt the most pressure, as selling increased across several developed markets. The U.S. 30-year treasury yield climbed to 5.6% at month end, its highest level since 2002 (CNBC, U.S. 30-Year Treasury, 4/10/26). Bond issuance supply caused the price pressure, as capital raising intensified from governments looking to widen deficits, and technology companies borrowing heavily to support the AI buildout. US hyperscalers have now issues more than $200 of long-term bonds this year to fund AI investment.
The UK and Japan followed suit, as 30-year yields reached levels not seen since the late 1990s. The 30-Year gilt yield hovered closely to 6% throughout most of September while the Japan 30-Year pushed over 4% early in the month (CNBC, British 30-year Gilt, 4/10/26; CNBC, Japan 30-year Treasury, 4/10/26). This was against a backdrop of energy-driven inflation risk and an increase supply of gilts from ongoing government borrowing and quantitative tightening from the Bank of England.
Shorter maturities also saw selling pressure, as front-end yields tracked energy prices closely. Renewed conflict in the Middle East kept oil above $100 per barrel for most of September forcing headline inflation higher, even though core inflation held steady. Amid this backdrop, the FED, ECB and BoJ all tightened and signaled more to come. The Federal Reserve raised rates for the first time since 2023 under a unanimous vote in mid-September, pushing rates to 3.75%-4.00% (CNBC, Federal Reserve, 4/10/26). The European Central Bank hiked rates for a second time in 2026 raising all three key rates by 25 basis points (European Central Bank, Monetary Policy Decisions, 4/10/26). The Bank of Japan followed suit raising its short-term rate to 1.25%, its highest level since April 1995 (Trading Economics, Japan Interest Rate, 4/10/26). While some economists appear skeptical, markets now expect the FED, ECB, and the Bank of England to raise policy rates three or four times before mid-2027.
European bonds fared worse than it’s global peers, when compared to the Bloomberg Global Aggregate Bond index. The European Central Banks tightening was more forceful than expected. Investors quickly focused on German fiscal spending and sovereign debt risk, primarily in France. French government bonds, more commonly known as OATS, took a hard hit following increased scrutiny from non-resident investors. The OAT-Bund spread exceeded 120 points in September, its highest level since the euro-area sovereign-debt crisis (Borsa Italiana, Bond Spread OAT-Bund 10 years, 4/10/26).
While September was still a difficult month in the Canadian bond market, Canadian bonds faired better compared to global peers, as the ICE Canada Bond Universe index fell 1.2% in September. Long-term bonds (-1.8%) still took the largest hit with Mid-term bonds (-1.4%) following close behind, short term bonds (-0.6%) were relatively flat, however, despite global counterparts seeing selling pressure under rate hikes (Morningstar, iShares Core Canadian Universe Bond Index ETF, performance, 4/10/26). Canada also experienced renewed concerns over inflation and the current path of monetary policy, pushing year-to-date returns into negative territory.
Investment grade credit returned negative as yields rose and spreads widened. While the spread widening was limited, thanks to strong corporate fundamentals, and investor demand for debt with variable interest rates (Floating-rate Notes). High yield bonds outperformed higher investment grades, supported by higher initial yields and stable default expectations that came along with strong company fundamentals.
Conclusion
September ended off the third quarter of 2026, in which resilient growth increasingly collided with tightening policy. Despite the Federal Reserve, European Central Bank and Bank of Japan all raising rates, and renewed uncertainty following Middle East Tensions keeping oil prices elevated. Business activity remained robust, and while the S&P 500 finished September flat, it finished the quarter positive, alongside Japan’s Topix and the UK FTSE All-Share index. Europe, Canada and emerging markets all lagged, largely due to rate concerns, trade tensions and a chip sell-off mid summer. Bonds, however, suffered the most in September, as long-term yields in the U.S., UK and Japan all climbed to levels not seen in decades. Commodities extended their strong run through both the month and quarter amid swinging oil prices and rising interest rates. Heading into the final quarter of the year, the markets continue to expect further rate hikes and geopolitical uncertainty. The key question is whether strong earnings momentum can override these headwinds and continue to push equities higher.
Disclaimers
This information has been prepared by the Analyst team at Qopia Financial and does not necessarily reflect the opinion of Qopia Financial. The information contained in this newsletter comes from sources we believe are reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation of data from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any securities. The information contained herein may not apply to all types of investors. All information expressed is independent of IA Private Wealth. Qopia Financial is a trademark of KL Advisory Group.
