October 2026 Market Update - Markets end the month on a stronger note
Global equities gained momentum towards the end of September as strong AI investment and corporate earnings supported markets
AI rally lifts global markets.
Global equities picked up towards the end of the month, driven by a powerful AI-fuelled technology rally. Chip and semiconductor stocks led gains as investors welcomed continued AI investment and strong demand. Falling oil prices also provided some relief, although crude prices moved higher again towards the end of September as concerns about the Middle East conflict returned.
Central banks are reassessing the outlook for interest rates amid renewed concerns about persistent inflation caused by higher energy prices. Bond yields also rose towards the end of the period. Corporate earnings have remained strong, with companies continuing to benefit from AI-related investment.
The US Federal Reserve (Fed) raised interest rates by a quarter percentage point to a target range of 3.75% to 4%, its first increase for more than three years. Inflation was unchanged at 3.4%, well above the Fed’s 2% target.
Despite rising price pressures, the US economy remains resilient. Retail sales rose a better-than-expected 1.2% in August, following a revised 0.5% decline in July. US job growth also picked up sharply, with the economy adding 162,000 jobs in August, more than twice the number economists had expected. The unemployment rate remained at 4.1%.
UK grows faster than expected.
The UK economy grew by 0.5% in the second quarter, which was faster than first estimated, helped by stronger services and business investment. The figures will provide a boost to Chancellor John Healey ahead of his first Budget on 28 October.
The Bank of England held rates steady at 3.75% for the sixth meeting in a row. UK inflation rose to 3.1% in the year to August, while unemployment remained at 4.9%. Average total earnings growth cooled to 3.9%, from 4.2% in the three months to June.
ECB hikes rates.
The European Central Bank (ECB) raised its deposit rate by 0.25 percentage points to 2.5% in September amid rising prices. Higher energy prices pushed headline inflation to 3.3% in August, up from 2.9% the previous month.
The eurozone economy grew by 0.6% in the second quarter, beating the initial 0.4% estimate. Growth was supported by stronger trade and household spending, while annual wage growth eased to 3.3%.
Germany also performed better during the first half of 2026 after several years of weak growth, helped by increased government spending on defence and infrastructure.
China’s exports continued to grow strongly in August, rising 25.0% from a year earlier. Manufacturing also picked up, with output, new orders, and export business all increasing at a faster pace. Meanwhile, industrial output expanded by 5.2%, accelerating from 4.5% growth the previous month.
Market-moving events
Rates stay higher for longer. The US Federal Reserve, European Central Bank, and Bank of Japan each raised interest rates by 0.25%, while the Bank of England kept rates unchanged. Persistent inflation, higher energy prices, and resilient growth supported further tightening, although the Bank of England viewed the energy price shock as temporary.
Borrowing costs rise. Long-dated government bond yields rose in the UK and US amid concerns about inflation and government borrowing. US 30-year yields reached 5.6%, their highest since 2002, while UK 30-year gilt yields hit 6%, their highest since 1998. Higher yields added to volatility but improved future income prospects for fixed income investors.
Energy concerns return. The Middle East conflict remained a key driver of sentiment. Concerns about disruption to global energy supplies pushed oil and gas prices higher, adding to inflationary pressures, bond yields, and market volatility. The potential impact on global economic growth remains uncertain.
Investment highlights
Broadening equity exposure. During the month, we conducted a full rebalance of the Agility portfolios. Exposure to the Omnis Asia Pacific ex Japan Fund was reduced following strong performance. Proceeds were reallocated to Chinese and Indian equities, where the team sees attractive valuations and growth opportunities. We also increased exposure to larger US companies through an equal weighted index to reduce concentration risk and added shortdated Japanese government bonds. These changes were funded by reducing bond holdings.
Positioning weighs on returns. Tactical asset allocation detracted from performance due to underweight positions in US and Japanese equities. This was partly offset by fixed income holdings, where exposure to the Japanese yen benefited from the currency’s appreciation.
Opportunities beyond AI. The portfolios remain modestly underweight equities, although this was reduced during the month. The team remains cautious about AI valuations but sees opportunities in emerging markets and the US if the rally broadens beyond AI.
This update reflects our view at the time of writing and is subject to change. The document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with your financial adviser. Omnis Investments is unable to provide investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given. Past performance should not be considered as a guide to future performance.
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