Navigating the Crosscurrents: Reading Global Markets Through Rising Uncertainty

Global markets remained volatile in September 2026, weighed down by the Fed’s rate hike, a sharp spike in US Treasury yields, with the 10Y yield crossing 5.2%, and persistent geopolitical tensions that pushed Brent crude back above USD 100/bbl. Within equities, risk participation remained selective, with EMs (-0.8%) outperforming DMs (-1.3%), while cyclicals such as info-tech saw renewed investor interest. In the US, large caps remained preferred over small caps amid rising rate-hike expectations. Within commodities, oil prices rose 14.4% during the month, while gold declined amid higher US real yields. Against this backdrop of elevated macro uncertainty, we have increased allocation to DMs, making the DM:EM split as 70% : 30% and also reduced our commodity allocation from 20% to 15% and reallocated the 5% to Fixed Income to curb portfolio volatility.

1. Sentiments Remained Tested, With Selective Risk Participation During The Month. A combination of Fed’s rate hike decision, sharp spike in treasury yields and sustained geopolitical tensions weighed on market sentiment. Large caps continued to outperform smaller caps (S&P 500: -0.5% vs. Russell 2000: -5.2% in Sep), while selective risk participation through cyclicals like IT (+4.4%) was visible. With rising global macroeconomic uncertainties, we expect investors to increasingly favour a more diversified approach over concentrated positions.

2. Global Liquidity Is Recovering, While Tighter Fed Policy Could Pressure Credit. US liquidity has recovered alongside stronger global M2 growth, providing support to credit and the broader economy. With the Fed only recently starting to tighten policy, the impact on borrowing and investment is likely to become more visible over the coming months. Business credit has remained more resilient than consumer borrowing, but further rate hikes could gradually slow corporate borrowing and investment, reducing support for growth. If liquidity conditions tighten further while household credit remains limited, the broader economy could become increasingly reliant on business investment to sustain growth.

3. Fiscal Borrowing And AI Investment Could Keep Pressure On Long-Term Yields. Long-term Treasury yields could remain elevated as inflation expectations, fiscal borrowing and expectations for further rate hikes continue to put pressure on the long end. AI-related investment is adding to corporate funding requirements, with long-end investment grade issuance rising 68% YoY while Treasury supply remains broadly stable. As both government and corporates raise more capital, the larger pool of debt could keep long-term borrowing costs elevated.

4. US Elections Could Reshape the Fiscal Outlook, DXY strength could sustain in the short-term. US elections could become an increasingly important driver of fiscal policy and market expectations, with the November midterms likely to shape the balance of power in Congress and the direction of future spending and tax policy. Weaker approval ratings and slower growth could increase the risk of a divided Congress, which may also encourage greater fiscal discipline and temper expectations for further deficit expansion. Meanwhile, wide US rate differentials continue to support the dollar, with DXY gaining 3.2% YTD, although further tightening in Japan and Europe could narrow the gap. Changes in the fiscal outlook and global rate differentials could therefore have important implications for Treasury yields, DXY and broader risk assets into year-end.

5. Europe’s Energy And Geopolitical Risks Could Keep Gas Prices Elevated. European gas storage is around 72%, below the 86.7% LPA level, leaving a limited buffer as the winter withdrawal season approaches. At the same time, the Russia–Ukraine war continues to constrain Russian pipeline gas flows, increasing Europe’s reliance on LNG and global gas markets. The widening TTF - Henry Hub spread highlights continued supply and geopolitical risks, while any further disruption or colder weather could accelerate storage withdrawals and push European gas prices higher. This could add to inflationary pressure and keep energy costs elevated for households and energy-intensive industries.

How this shapes a portfolio:

We maintain a 70% allocation to global equities, with a revised split of 70% developed markets and 30% emerging markets, increasing exposure to developed markets amid rising macroeconomic uncertainty and selective risk participation. Commodity allocation has been reduced from 20% to 15%, while the 5% reduction has been reallocated to fixed income to help moderate portfolio volatility. Within commodities, gold remains the core holding, supported by central-bank accumulation and de-dollarization trends, while oil, agricultural commodities and other industrial metals provide diversified cyclical exposure. The revised allocation also introduces a fixed-income component, offering greater balance as elevated Treasury yields, persistent inflationary pressures and geopolitical risks continue to shape global markets.

The full reasoning, and every chart behind these themes, sits in the October edition of The Investing Pantheon, available to download below.

Read the October Pantheon: Here