Global equities have had a strong 2026 so far despite war, spiking oil prices and sticky inflation.
As the fourth quarter gets under way, the MSCI World index is up 15.5% over the past year, and 13.5% in the calendar year to September.
The US-Israeli attack on Iran at the end of February, which launched a rolling conflict that continues to this day, was the defining geopolitical event of the year.
Oil prices immediately spiked to well above the $100 mark, and have swung sharply up and down in the following months. High energy prices and the implications for inflation are typically very bad news for equities.
That has not proved the case this year though. Despite inflation remaining stubbornly above the 2% sweet spot favoured by the world’s major central banks, investors have not retreated into risk-off positions in large enough numbers to pull markets down.
It leaves little room for rate cuts though, and hikes are still firmly on the table despite other data points including jobs numbers indicating financial conditions are too tight.
The central feature of the global stockmarket itself during 2026 has been optimism around the artificial intelligence build-out, and the related strength of corporate earnings.
Tech companies are spending at unprecedented rates as the magnificent seven and others race to become top dogs in this world changing technology. It is not a one-way street though, and big money is being made as well as spent.
The circular nature of this, with tech firms being each others’ customers and suppliers, has certainly raised concerns among AI sceptics
The SpaceX IPO was the most notable individual event in global equities markets seen this year. The shares are trading significantly above the $135 IPO price as of October, but that does not tell the whole story.
The price soared like one of the firm’s successful rocket launches in the days following the float to over $200, but subsequently crashed to barely more than $100 in August, before recovering strongly.
With the fourth quarter underway investors are wrestling with a few key questions on where the global stockmarket moves from here.
Firstly, the US-Iran conflict could either be resolved and see oil supplies freed up, or escalate and send oil prices even higher. Nobody can tell you with certainty which of these scenarios is going to play out.
We are now only a few weeks from the US mid-term elections, the outcome of which could have significant bearing on US policy across a number of areas.
Hot on the heels of this, the Anthropic IPO is expected to be an even larger and possibly more significant transaction than the SpaceX deal, before a crucial earnings season gets underway.
Robust earnings have been the bedrock of a strong year for equities, and investors will be watching closely for further confirmation that companies are delivering the numbers to justify lofty valuations, or not.
Rising Treasury and gilt yields complicate the picture, as they sit at levels not seen since the global financial crisis. So far, equities investors have not been unduly spooked by this, but it is far from certain that will continue if no improvement is seen.
Tom Stevenson, investment director at Fidelity International, sees signs of weakness emerging ahead of earnings season.
“Investors continue to be buffeted by the headwind of rising bond yields and the tailwind of booming company earnings,” he said. “How this two-way pull resolves itself will be key to the final three months of another strong year in the markets.
“The market as a whole has edged higher over the summer, but with flagging momentum. Look beneath the surface and the cracks are starting to show.
“The gap between the performance of the broad equal-weighted S&P 500 index and the market leaders has widened significantly over the past couple of months, a worrying reminder of how markets can narrow as they approach a cyclical peak,” he added.
“Just 25% of the US’s biggest stocks are now ahead of their 50-day moving average, and less than half are doing better than their 200-day average. Behind the scenes, a stealth correction seems to be underway.
“That is showing up in valuations, which have fallen below 20 times expected earnings. Investors are indicating clearly that they are concerned about paying up for profits which may be close to peaking.”
