From a purely equity standpoint, the main news was an attempted and ultimately short-lived sell off of stocks linked to the AI theme sparked by a combination of bond market troubles, flighty sentiment in thinly traded summer markets and concerns surrounding the financing of the enormous AI capital spend.

We say ‘purely equity’ because the most significant development for investors over the period has been an ugly spike in sovereign bond yields (which move inversely to price). No asset class is an island, and one senses that the knock-on effect of bond market pain is in its early stages of rippling through other corners of the market. To paraphrase Robert Armstrong (of the FT’s excellent Unhedged podcast) there is no magic number for government bond yields where we should be getting our tin hats on, but historically when US 10-year rates have pipped 5.0% skeletons have begun to emerge from closets, sometimes in the least expected of places.

We don’t mean this to cause alarm, but one can already see unexpected happenings occurring, from Scott Bessent (US Secretary of the Treasury) stepping-in to support the Japanese Yen and declaring to anyone willing to bet against him that "I am the house now”, to French borrowing costs widening out far above Germany – remember the eurozone crisis? (Prizes for anyone who can remember what/who the PIIGS were). Our point is that while higher borrowing costs do not necessarily mean market Armageddon, they are often a catalyst for change.

Within equity markets, AI and oil have remained the primary drivers of returns. Within the tech sector it is interesting and heartening to see stock price performance disperse as investors are taking a more nuanced approach to the AI theme, rather than indiscriminately buying anything linked to AI. One can see this at the mega cap end with Nvidia up 14.1% in the quarter vs Broadcom down 7.0%, but dip further down the spectrum and there have been some extraordinary moves. Oracle shares have halved in 12 months on concerns they are overstretching their balance sheet, while Dell are up 330% in 2026 a investors see huge demand for their hardware in data centres. Meta shares have come back into vogue after the successful early launch of their Muse AI agent, while Apple ended the quarter at all-time highs, a beneficiary of being the only big tech name that is not going big on their AI infrastructure spend.

The ongoing conflict in the Middle East has left energy prices inflated with seemingly no end in sight. One of the few beneficiaries of this are the western oil majors, such as ExxonMobil, Shell and BP who all saw shares up over 20% in the quarter and that is before we include their high dividend payouts.

Consumer names remain especially unloved at present at investors are concerned at the lack of growth here, especially given squeezed budges from inflated oil and borrowing costs. Previous market darlings like Nike, Nestle or PepsiCo look severely unloved.

As we begin the final quarter of the year and against the backdrop of higher rates, one must tread particularly carefully. In a market that has been so driven by one theme (AI) for so long, the discipline of maintaining a diversified portfolio of stocks on reasonable valuations may seem dated to some, but it remains fundamental to how we manage risk on behalf of our clients. Patience is a virtue.

The above article has been prepared for investment professionals. Any other readers should note this content does not constitute advice or a solicitation to buy, sell, or hold any investment. We strongly recommend speaking to an investment adviser before taking any action based on the information contained in this article.

Please also note that the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.