Resilience Amid Change: Q3 2026 Market Review

by Charlene Lock

Overview

The third quarter was another reminder of how quickly the investment landscape can shift. Political change at home in the UK, persistent inflation, and ongoing tensions in the Middle East all shaped the quarter and market position. Despite these factors, global share markets proved resilient, while bond markets had a tougher time as changing interest rate expectations pushed yields higher and therefore prices lower. With government tax and spending decisions ahead (and a budget around the corner!) there is plenty for investors to keep an eye on as we head into the final stretch of the year.

Stock Markets

Global shares ended the quarter with modest positive returns, supported by healthy company earnings and continued enthusiasm for artificial intelligence. The US was among the stronger regions, with major technology companies delivering impressive results and the broader economy remaining resilient. Japan also performed well, benefiting from strong earnings growth and ongoing corporate governance reforms.

UK shares dipped slightly over the quarter but held up better than European peers, helped by greater exposure to financials, energy and commodity-related sectors. Emerging markets were more mixed, with a sell-off in parts of the Asian technology sector in July highlighting how sensitive markets remain, and could raise questions about whether the significant sums being invested in AI will ultimately deliver the returns expected.

Beyond technology, there were encouraging signs of broader market participation. Energy companies benefited from higher oil prices, while higher interest rates improved the earnings outlook for some banks. This wider mix of drivers illustrates how diversification can help spread exposure across different areas of the market, rather than concentrating on any single theme.

Bonds and Fixed Income

It was a more challenging quarter for bond investors. Interest rate expectations continued to shift as central banks balanced persistent inflationary pressures against the outlook for economic growth. This contributed to volatility in government bond markets, with longer-dated bonds particularly sensitive to changes in expectations.

Corporate bonds from financially stronger companies generally held up better, supported by sound company finances and steady demand for the income they offer. However, higher yields can mean that bonds now offer a higher level of income than has been available for much of the past decade, although bond prices can still fall and remain sensitive to changes in interest rates and credit conditions.

Commodities and Real Assets

The quarter was mixed for real assets. Middle East tensions contributed to higher and more volatile energy prices as concerns over potential supply disruption increased. Gold performed well earlier in the quarter but came under pressure later on as higher bond yields increased the appeal of income-paying alternatives.

Property and infrastructure both faced headwinds from higher borrowing costs and rising yields. At the same time, continued investment in data centres and electricity networks highlighted the significant capital being directed towards infrastructure supporting AI and cloud computing. It was a quarter that underlined both the challenges and the evolving dynamics across this part of the market.

Looking Ahead

Several themes are likely to remain important as we move into the final quarter. Inflation and the direction of interest rates will continue to influence both shares and bonds. Geopolitical developments, trade tensions and the extent to which company profits can justify the optimism surrounding AI all bear watching. Government tax and spending decisions will also continue to shape sentiment.

In the US, midterm elections in November have the potential to influence the direction of trade and fiscal policy, adding a further source of uncertainty for global markets outlooks.

Perhaps the most useful takeaway from the quarter is that different parts of the market can respond very differently to the same backdrop. Shares remained resilient even as bonds came under pressure, and the ‘leaders’ within stock markets continued to shift. For long-term investors, trying to anticipate each of these movements is extremely difficult.

As ever, the focus should remain on a well-diversified portfolio aligned with individual goals, timescale, attitude to risk and capacity for loss, rather than reacting to short-term headlines. Periods of uncertainty are a normal part of investing, and maintaining a considered long-term approach can help investors avoid reacting to short-term market movements.

This update is intended to provide general information about recent investment market developments. It does not constitute personal financial advice or a recommendation.

The value of investments and the income they produce can go down as well as up, and you may not get back the full amount originally invested. Past performance is not a reliable indicator of future performance.