Latest investment update

September was a mixed but largely steady month for financial markets. Equity markets held up well, with continued economic growth and robust company earnings providing support. This was notable because government bond yields rose sharply (yields rise as bond prices fall) and concerns over higher interest rates also returned. The month showed that different parts of a diversified portfolio don’t always move in the same direction.

Shares held up better than many investors might have expected, as rising bond yields can make conditions more challenging for equities. This is particularly true for companies whose share prices reflect expectations of strong future growth. Even so, AI-related shares continued to perform well. Wider equity markets also remained steady as investors still appeared confident about economic activity and company growth prospects.

The picture wasn’t without risks. Geopolitical uncertainty and higher energy prices added to inflation concerns. Investment in artificial intelligence infrastructure also increased competition for funding, helping to keep borrowing costs higher for businesses. However, these headwinds weren’t enough to derail equity markets.

The main market story was the rise in bond yields. A bond yield is the income an investor can expect from holding a bond, relative to its price. When yields rise, existing bond prices fall. Several factors drove the move in September, including stronger economic data, continued inflation pressures and government borrowing needs. Investors also expected interest rates to be higher for longer.

That environment was less supportive for bonds. However, the impact should be kept in perspective – bond prices moved lower, but the falls were relatively contained. Investors also continued to receive regular interest payments and there wasn’t a major equity market downturn during the month. As a result, bonds weren’t needed to cushion portfolios against sharply falling share prices.

Central bank decisions remained an important influence. The US Federal Reserve and the European Central Bank raised interest rates. The Bank of England held rates steady. Even so, UK government bond yields rose alongside yields in other markets. This showed that bond prices depend on more than the latest interest-rate decision and that expectations for growth, inflation and government borrowing also matter.

Surveys of business activity released during the month were generally encouraging. Growth remained healthy and comfortably in expansion territory. This helped to explain the steady performance of equities and the pressure on bond yields. Stronger growth can support company earnings, however, it can also keep inflation and interest rates higher.

For investors, September highlighted the value of holding a mix of investments. At times, equities may provide stronger returns while bonds lag. At other times, bonds may help to cushion portfolios when share prices fall. Diversification doesn’t remove risk, though it can reduce reliance on any single market outcome. Growth is holding up, but inflation, interest rates and geopolitics still create uncertainty. A balanced, long-term approach remains important.