Weekly Comment: Move over bonds, it’s time to talk equities

Usually, equities not bonds hog the limelight and for good reason too. Think forecast-busting corporate results, companies promising to put humans on Mars and we haven’t even got to takeovers, mergers and acquisitions. What’s not to like? And yet, for weeks government bond markets have monopolised the headlines (and the Weekly Comment) as yields around the world hit levels not seen since around the turn of the century.

No shortage of reasons why yields have been on the rise: high inflation triggered by the Middle East war and energy price shock; growing concerns over national debt levels in the developed world; robust economic growth; particularly in the US; and a glut of debt issuance from the artificial intelligence (AI) hyperscalers. And the thing is, the above yield drivers do not appear to be going away anytime soon. That said, yields barely budged over the course of the week ended Friday 09 October 2026. Nothing new to see here then. A chance therefore to talk equities for a change.

Important information - This is a marketing communication provided for information purposes only and does not constitute independent investment research, investment advice or a personal recommendation.

Market overview

US stocks hit highs

And there’s lots to discuss. For while bond yields have been on a charge, so too have leading stock indices, at least in the US where a number are trading at or close to all-time highs. No prizes for guessing what has driven equity markets higher. AI. Since a September wobble, AI-related stocks from chipmakers to hyperscalers have recovered strongly as the flow of dollars being invested in AI infrastructure shows no signs of letting up. Such has been the dominance of the trade that today over a third of the largest publicly traded companies in the US are linked to the AI-investment cycle.

But while it may seem that the march of AI has followed an unbroken  path, periodic doubts over the sustainability of investment levels and associated share price reversals suggest otherwise. Witness the above-mentioned September wobbles when the industry itself was calling for a slowdown in the development of AI due to safety fears.  As we have seen though, markets quickly shrugged off these concerns, along with higher borrowing costs (no getting away from rising government bond yields), to hit new heights.

Despite an AI hiccup

Last week, however, markets had to contend with another potential AI hiccup after frontier model developer OpenAI revealed that annualised revenues for 2026 are currently running around US$20bn lighter than previously thought. Instead of a projected US$70bn, annualised revenues were at the US$50bn level as at the end of September. Still a huge number and one that represents a near-doubling from the US$30bn the company estimated as recently as July. The trouble is, with not much else to go on, revenue growth projections at both OpenAI and rival Anthropic are viewed as barometers for AI demand. Strong growth and the huge amounts of capital being invested can be justified. Slowing growth and questions are raised. Hence a risk-off day for stock markets following the OpenAI news.

Another bumper season?

Even so, one bad day was not enough to stop global (and US) equities from ending the week in positive territory. This was partly down to previously overlooked sectors, such as consumer staples, utilities, and energy, stepping up. Will the once unloved lead the way from here on? Time will tell, but don’t write off AI stocks just yet. For this week sees the start of the Q3 corporate earnings season and yet another AI-fuelled bumper update is on the cards. US large caps are expected to post a 29.6% Q3 collective earnings growth rate, according to FactSet. Were that forecast to come in, it would mark a third consecutive quarter in which earnings have grown by more than 25%.

The Q3 reporting season will therefore serve as another gauge of the strength of the AI build-out narrative. But it won’t be just an AI story. In all, 11 sectors in the US market are pencilled in to report quarter-on-quarter earnings growth. Energy companies, for example, are expected to post strong numbers as they continue to benefit from high energy prices. Profits at banks are also forecast to grow at a healthy clip thanks to investment banking and trading activity.

All eyes then on the upcoming earnings season. If nothing else, at least it’s another excuse to focus on equities rather than bonds in the weeks ahead.

Weekly market moves:

The MSCI All Country World Index (MSCI ACWI) ended the week 0.7% higher (+14.7% YTD).

United States:

Like the previous week, US stocks outpaced their global peers with a 1.2% gain (+15.1% YTD). Unlike the previous week, growth (+0.7%) underperformed value stocks (+1.7%). Growth is now up 8.6% YTD, less than half of value’s +22.0% gain. Small caps found the going hard, however, ending the week 0.9% lower (+14.3% YTD).

In terms of economic data, the Institute for Supply Management services Purchasing Managers’ Index (PMI) came in at 54.9 for September. That’s a little lower than August’s 55.4 but still comfortably above the 50 threshold that marks expansion. The University of Michigan’s preliminary October reading for Consumer Sentiment also edged downwards. This time to a five-month low of 46.3. No need to look too far for an explanation as the survey showed inflation expectations are now up to 4.7%. Against this backdrop US Treasury yields remained at multi-decade highs after barely moving during the week:  the yield on the 10-year Treasury ended three basis points lower at 5.24% (up 107 basis points YTD); while the 2-year Treasury yield declined four basis points to 4.79% (up 131 basis points YTD).

United Kingdom:

UK large caps outperformed courtesy of a 0.9% weekly gain (+9.0% YTD). Not so mid caps, which could only muster a 0.1% rise (+10.6% YTD). Mid caps’ more domestic focus may have worked against the smaller end of the UK market after the latest Composite PMI reading showed a slowdown in September. At 52.0, activity remains in expansion territory, but this was lower than the 52.5 registered in August.  Sterling followed the mid-cap lead and closed the week unchanged at US$1.32. 10-year UK gilts underperformed their global peers after the yield rose seven basis points to 5.44% (up 97 basis points YTD). The fast-approaching Budget perhaps having an effect here.

Europe ex UK:

The MSCI Europe ex-UK Index underperformed after closing 0.3% lower (+8.3% YTD).  Higher energy prices didn’t help—Europe is a net importer of fossil fuels. Neither did the hawkish tone of the minutes from the European Central Bank’s (ECB) September meeting, particularly comments such as inflation is “set to remain well above target for an extended period” and that “the full inflationary impact of the energy shock had yet to play out.”

At the national level, Swiss stocks stood out with a 0.9% gain (+7.1% YTD), especially when compared to German stocks which ended 0.6% lower (+2.4% YTD); France’s which fell 1.2% (-1.4% YTD); and Italy’s which closed off -1.5% (+14.2% YTD). The euro weakened further, ending the week at US$1.12 compared to US$1.13 previously. Finally, the yield on the 10-year German bund rose two basis points to 3.48% (up 63 basis points YTD).

Important information

This material is a marketing communication provided for information purposes only and does not constitute independent investment research. References to financial instruments are for general information purposes and are not subject to requirements applicable to independent investment research.

Any references to securities or financial instruments should not be regarded as a personal recommendation, or as an offer, solicitation or invitation to buy or sell any financial instruments. The views expressed are those of the authors at the time of publication and are subject to change. Past performance is not a reliable indicator of future results.

This material does not constitute tax, legal or accounting advice. You should seek independent professional advice appropriate to your individual circumstances before making any financial decision or engaging in any transaction.

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