Weekly Market Review

Higher oil prices and bond yields are testing markets ahead of a pivotal week for central banks, while resilient earnings and a broadening global opportunity set continue to support the longer-term outlook.

Market Snapshot

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To help put your portfolio’s performance into proper context, we compare it with the ARC Private Client Index. Unlike a stock-market index such as the MSCI World, ARC measures the actual, net-of-fee returns achieved by professional wealth managers across diversified portfolios containing investments such as equities, bonds, cash, structured products and alternatives. Portfolios are grouped according to their level of investment risk, allowing us to compare your results with portfolios managed to a broadly similar risk profile. We therefore believe ARC provides a fairer and more meaningful measure of how your overall portfolio has performed relative to both the level of risk taken and the wider wealth-management industry.

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ARC USD Equity Risk PCI - Dec 03
+8.4% YTD
ARC USD Balanced Asset PCI
+5.9% YTD
ARC USD Cautious PCI - Dec 03
+2.9% YTD
ARC USD benchmark figures shown are the latest S&P Dow Jones Indices Q3 2026 performance estimates through August 2026. Movements shown are year to date.

Summary

  • Global markets entered a pivotal central-bank week under renewed pressure from rising oil prices and a sharp increase in government bond yields, with investors balancing resilient economic activity against the risk that inflation remains higher for longer.
  • In the US, the 10-year Treasury yield moved through 5% as energy prices, heavy government borrowing and expectations of further Federal Reserve tightening pushed borrowing costs higher, while equity markets remained sensitive to changes in the outlook for artificial intelligence investment.
  • European equities faced similar pressures from higher bond yields and energy costs, although defensive areas of the market provided support and the broader earnings backdrop remains comparatively resilient.
  • Artificial intelligence remains an important long-term investment theme, but recent calls for a slower pace of development and continued scrutiny of infrastructure spending have encouraged investors to distinguish more carefully between long-term beneficiaries and areas where expectations are already very high.
  • Oil prices remain a key macroeconomic variable following renewed disruption in the Middle East, with higher energy costs complicating the inflation outlook for central banks in both the US and Europe.
  • The coming days are dominated by major central-bank decisions, with the Federal Reserve, Bank of England and Bank of Japan all in focus as investors assess how policymakers will balance inflation risks against the need to preserve economic growth.

Market Review

United States

US markets are entering one of the most important policy weeks of the second half of the year with the Federal Reserve expected to remain firmly focused on inflation. The most significant market development has been the renewed rise in Treasury yields, with the 10-year yield moving above 5% for the first time since 2023 as investors responded to higher oil prices, persistent inflation risks, substantial government borrowing and expectations that interest rates may need to remain restrictive for longer. Higher yields have created a more demanding environment for equities because investors can now earn a materially higher return from government bonds, increasing the hurdle that companies must clear to justify equity valuations. Even so, the fundamental picture remains more supportive than the bond-market headlines alone suggest. US economic activity has remained resilient, corporate earnings have generally held up well and profitability across much of the market remains healthy. Technology and AI-related shares have experienced renewed volatility as investors reassess the pace and economics of the AI build-out, but this should be viewed alongside a broader market in which earnings growth has increasingly extended beyond the largest technology companies. The key issue for the months ahead is therefore not simply whether rates rise again, but whether earnings can continue to grow fast enough to offset a higher discount rate. Our view is that the US remains supported by strong corporate balance sheets, innovation and economic resilience, although investors should expect greater differentiation between companies as the cost of capital stays elevated and markets demand clearer evidence that investment spending is translating into sustainable profits.

Europe

European markets have also been navigating a difficult combination of higher energy prices, rising bond yields and changing expectations for monetary policy. The STOXX 600 came under pressure at the start of this week, with technology shares particularly weak, while Germany’s 10-year government bond yield reached levels not seen since 2009 as investors priced a greater possibility that inflation will remain persistent. Europe is more directly exposed than the US to changes in imported energy costs, making the latest rise in oil especially important for the inflation outlook and for the European Central Bank’s next steps. At the same time, the region should not be viewed solely through the lens of these short-term macroeconomic pressures. European companies include a broad range of global industrial, healthcare, financial and consumer businesses, and valuations in many parts of the market remain less demanding than those of comparable US companies. There is also a longer-term investment opportunity emerging around productivity and technology adoption. ECB President Christine Lagarde has highlighted the need for Europe to expand its own AI infrastructure and computing capacity, arguing that greater adoption of artificial intelligence could materially improve productivity over the coming decade. That investment will take time, but it illustrates how Europe’s opportunity set can broaden beyond its traditional sectors. With fiscal investment, digital infrastructure and efforts to strengthen strategic independence likely to remain important themes, Europe continues to offer useful diversification within a global portfolio despite the near-term challenges from energy and interest rates.

Global Markets

Global markets are being shaped by an unusually powerful interaction between energy, interest rates, artificial intelligence and fiscal policy. Renewed Middle East tensions have pushed oil back above US$100 a barrel, adding to inflation concerns just as government bond markets are already absorbing heavy sovereign issuance and large private-sector funding requirements. The result has been a broad rise in yields across the US, Europe and parts of Asia, which has created volatility across equities and other risk assets. At the same time, the global economy has continued to demonstrate a degree of resilience, and the investment opportunity set is considerably wider than the headlines around US technology might imply. Japan remains focused on inflation and the possibility of further Bank of Japan tightening, European policymakers are considering how to improve productivity and strategic investment, and emerging markets continue to provide exposure to different sources of economic growth and corporate earnings. The AI cycle itself is also evolving: attention is gradually moving from the earliest and most obvious beneficiaries toward infrastructure, power, productivity and the companies that can use new technology to improve margins and efficiency. This broadening is important for investors because it reinforces the value of holding a portfolio across regions, asset classes and investment styles rather than relying on one dominant theme. Higher yields and geopolitical uncertainty may keep markets volatile in the near term, but resilient earnings, continued investment and the capacity of businesses to adapt provide a constructive foundation for patient investors with diversified exposure.

The Week Ahead

Federal Reserve decision

The Federal Reserve’s September meeting is the key event for markets. Investors will focus not only on the rate decision but also on Chair Kevin Warsh’s assessment of inflation, higher energy prices and the appropriate path for policy into the final quarter of the year.

Bank of England and Bank of Japan

The Bank of England and Bank of Japan are also in focus. The BoE is expected to remain cautious as it balances inflation against growth, while the BoJ faces continued pressure to normalise policy and support the yen.

Energy and bond markets

Oil prices and long-dated government bond yields remain important market signals. A sustained rise in either would tighten financial conditions, while signs of stabilisation could provide support to equity markets.

PWM View

Despite the renewed volatility in bonds and energy markets, we continue to see a constructive long-term investment backdrop. Corporate earnings remain an important source of support, economic activity has proved more resilient than many expected and the global opportunity set is becoming broader rather than narrower.

The current environment is likely to reward diversification. Higher interest rates have restored meaningful return potential to parts of fixed income, while equity opportunities now extend across a wider range of regions, company sizes and investment themes. This gives diversified portfolios more potential sources of return than was the case when markets were heavily dependent on a small group of companies.

Periods of volatility can feel uncomfortable, particularly when geopolitical events and central-bank decisions dominate headlines, but they are a normal feature of long-term investing. They can also create opportunities as valuations adjust and capital moves toward businesses and markets where fundamentals remain strong.

We therefore remain positive on the medium- to long-term outlook while recognising that the path is unlikely to be smooth. A well-diversified portfolio, spread across different regions and asset classes and built around long-term objectives, remains in our view the most sensible way to participate in global growth while reducing dependence on any single economic or market outcome.