SEPTEMBER 2026 FUNDHOUSE MARKET REPORT

This article has been prepared by Fundhouse and is reproduced by LifeMap Financial Planning for general information. It reflects Fundhouse's views as at the date of publication and those views may change. It does not take account of your individual circumstances and should not be treated as personal financial advice or a personal recommendation.

Economic commentary

In September, we learned that UK consumer prices rose by 3.1% in the year to August, up from 2.9% the month prior. The increase was driven largely by transport costs as escalating tensions in Iran pushed oil prices higher over the month. Energy prices are being watched closely, as a sustained increase here can have knock-on effects in the wider economy, raising costs of many goods and services for businesses and consumers. Against this backdrop, the Bank of England (BoE) weighed up the need to prevent a renewed rise in inflation against the risk of placing further pressure on households and businesses with higher interest rates. For now, however, the knock-on effects remain a risk rather than a reality. Higher mortgage rates have made households more cautious with their spending, further easing price pressures. With the threat yet to materialise, the BoE chose to hold interest rates, marking a divergence from the Federal Reserve (the Fed) and the European Central Bank (ECB), both of which raised interest rates in September. But the clock is ticking, as BoE Governor Andrew Bailey warned later in the month, the longer energy prices stay elevated, “the bigger the impact it will have” on inflation.

In the US, the year began with investors expecting interest rate cuts following President Trump’s appointment of Kevin Warsh as Federal Reserve Chair. The appointment was largely viewed by investors as political, given Trump's repeated calls for Warsh’s predecessor to cut rates; Warsh was widely seen as being more supportive of lower interest rates. However, the outlook changed dramatically following Trump’s own military intervention in Iran. Higher energy prices linked to the conflict have kept inflation elevated, with US consumer price inflation standing at 3.4% in the year to August. Concerned that inflation had remained too high for too long, the Fed voted to raise interest rates for the first time in three years. Despite the economic impact of the Iran conflict, the US economy has remained resilient, giving the Fed room to raise rates without significantly increasing the risk of an economic slowdown. The decision did not sit well with Trump, who argued that US interest rates "should be 1%, or less" and dismissed the committee as "a bunch of politicians". We note that a Fed Chair appointed largely to deliver lower interest rates has instead overseen an interest rate increase. This serves as a clear reminder of how quickly economic conditions can change and how difficult inflation and interest rates are to predict.

Market commentary

Global equity markets rose over the quarter, supported by a strong economic backdrop, resilient company earnings, and continued heavy spending on AI. UK equities performed well, as the index's large weighting towards energy and commodity companies benefited from higher energy prices following the conflict in Iran. European stocks lagged, as investors weighed the impact of the ECB's interest rate increases on growth and company valuations. Despite growing calls for tighter regulation and a slowdown in AI development, AI remained the dominant force in markets, but the quarter showed just how quickly the perceived winners from AI can change; for much of the first half of the year, investors viewed AI chipmakers, which have a heavy weighting in emerging market indices, as the primary beneficiaries of the AI boom. More recently, attention has shifted to the technology giants funding AI infrastructure, such as Amazon and Meta, as investors increasingly believe they will capture a greater share of the long-term rewards. That shift lifted US equities, where these companies make up a large share of the market, and held back emerging markets, where they do not. In the space of a few months, the market's view of who wins from AI was turned on its head, and few could have predicted it.

Global bond markets ended the quarter lower. Worries over government debt, stubborn inflation, and a surge in borrowing by large technology companies to fund AI build out, pushed prices down, taking yields to multi-decade highs. Expectations that central banks will keep raising interest rates added to the pressure, with markets betting on further rises from the Fed and ECB, and increasingly from the BoE, over the coming year. European government bonds were among the weakest performers, with French bonds coming under particular pressure as political uncertainty and concerns over the country's finances pushed borrowing costs close to their highest level in over two decades.

Outlook. The quarter was a reminder of how quickly market leadership can change, even within a single theme like AI. Investors began the year narrowly favouring AI chipmakers but soon shifted their focus to the technology giants funding AI infrastructure projects. Predicting such changes, or the eventual winners from AI, is notoriously difficult. The same is true of macroeconomic outcomes, with expectations for interest rates moving sharply over the year. Rather than trying to forecast short-term market shifts, we remain focused on fundamentals and valuations. As investor optimism surrounding AI continues to drive valuations higher in parts of the market, we believe that our disciplined, valuation-driven approach remains essential.

Fundhouse is the trading name of Fundhouse Bespoke Limited. Fundhouse provides investment management services to professional clients and does not provide financial advice. Importantly, this note does not represent investment advice and any reader should always speak to their financial adviser before making any investment decisions. Please note that the value of any investment may go down as well as up and you may lose capital when investing and the value of your investments may not always increase. Please ensure that you are comfortable bearing financial losses and that you are comfortable taking a long-term investment view of five years or more.