Market Overview
Global equity markets fell in September, as investors adopted a cautious posture amid a confluence of downside risks.
The economic fallout from the U.S.-Iran war continued to hang over markets, as the conflict dragged on into its seventh month in September, with the two countries locked in an uneasy standoff that has left the global flow of crude oil passing through the Strait of Hormuz under serious threat despite signs during the month that Iran’s de facto blockade of the vital waterway was loosening. News that Yemen’s Iran-aligned Houthi militia had launched military strikes on Saudi Arabia’s oil infrastructure and had seized de facto control of the Bab al-Mandab Strait—a critical chokepoint that connects the Red Sea to the Gulf of Aden and serves as an alternative route for transporting crude oil and gas from Saudi Arabia—raised the spectre of a widening conflict that could further disrupt the worldwide supply of crude oil. In fits and starts, crude oil prices climbed during the month, adding fuel to the ongoing sell-off in government bond markets due to worries about worsening global inflation, with the resulting rise in yields, in turn, cranking up the pressure on world stocks by undercutting their appeal.
Stubbornly high inflation around the world was front and centre in the minds of monetary policymakers at major central banks as they deliberated over interest-rate-policy paths. In the U.S., where economic reports released during the month indicated that inflation at the wholesale and consumer levels in August remained painfully high while the labour market continued to show strength, the Federal Reserve (Fed), as widely expected, raised interest rates for the first time since July 2023 with a 25-basis point increase. The Fed also signalled that more hikes were likely soon, citing persistent domestic price pressure and a strong U.S. economy. At the end of the month, traders in federal funds futures markets were pricing in a 37.1% probability that the Fed would deliver another 25-bp hike at its next policy meeting in October, according to the CME’s FedWatch tool. The yield on the benchmark 10-year U.S. Treasury note ended September at a 19-year high of 5.29%, 54 bps higher than a month earlier.
Across the Atlantic, where inflation in the eurozone accelerated at its fastest pace in nearly three years in August due largely to higher energy prices, the European Central Bank (ECB) lifted interest rates by 25 bps and warned that inflation was likely to remain above its 2% target for the next few years due to inflationary pressure induced by the U.S.-Iran war. The ECB also stated that economic growth this year and in 2027 would likely be stronger than earlier forecast, thanks to surprising resilience in the common currency bloc’s economy. The ECB is expected to deliver four 25-bp rate hikes over the next 12 months, according to swap market pricing. In the U.K., the Bank of England (BOE) held interest rates steady in September, marking the sixth consecutive policy meeting in which it had done so, even as higher fuel prices drove domestic inflation to its highest level since March. However, the BOE warned that the protracted U.S.-Iran war was increasing the likelihood that the British central bank would raise interest rates soon. Elsewhere in Europe, Switzerland’s Swiss National Bank and Sweden’s Riksbank left interest rates unchanged, as domestic inflation in both countries remained subdued, thanks to their economies’ limited reliance on imported oil. In contrast, Norway’s Norges Bank lifted interest rates by 25 bps, as domestic inflation remained above its target amid elevated energy costs and wage growth. The yield on the 10-year German Bund, Europe’s principal safe-haven asset, ended September at 3.60%, 26 bps higher than a month earlier.
Meanwhile, in Japan, the Bank of Japan (BOJ) raised interest rates to a 31-year high with a 25-bp hike at its policy meeting in September and signalled that its focus going forward was ensuring that domestic inflation did not surpass the Japanese central bank’s 2% target, raising expectations that more rate hikes were forthcoming. Elsewhere in Asia, the People’s Bank of China held its benchmark interest rates unchanged for a 16th consecutive month.
The artificial intelligence (AI) trade was volatile during the month, as sentiment for the transformative technology remained in flux. News that a handful of prominent AI company executives had called for a pause in the development of more advanced AI models and for the establishment of industrywide safety measures so as to prevent possible cataclysmic events sparked a steep sell-off of AI-linked stocks around the world, especially those of semiconductor manufacturers. AI-linked stocks staged a strong recovery in subsequent days, however, as investors bet that even with safety guardrails in place, technology companies would still need chips to power these measures. Notably, in a reflection of how dominant the AI trade was during September, nine of the top 10 contributors to the MSCI All Country World Index’s overall performance in the month were stocks of companies linked to AI and their aggregate contribution outperformed the index’s overall return.
Global stock markets received a significant boost from a strong earnings season, with company profits holding up well in the face of stiff macro headwinds, according to data from FactSet. In the U.S., 86% of the companies in the S&P 500 Index that reported second-quarter results topped consensus estimates, outperforming the long-term average of 67%. The second-quarter earnings grew 52.3% from a year earlier. In Europe, 55% of the companies in the STOXX 600 Index posted better-than-expected earnings, surpassing the 54% that typically do so in a quarter. The second-quarter earnings expanded 20.8% from a year earlier. In Japan, 72% of the companies in the TOPIX reported positive earnings surprises, surpassing the 60% beat rate over the past four quarters. The earnings for the April–June period increased 74.8% from a year earlier. In Hong Kong, 60% of the companies in the Hang Seng Index reported better-than-expected earnings, surpassing the 48% beat rate over the past four quarters. The second-quarter earnings increased 3.2% from a year earlier.
Against this backdrop, equity markets in the developed and developing worlds retreated, with the latter outperforming the former. In the U.S., the S&P 500 Index slipped but outperformed the broader global index, as rising Treasury yields dented the impact of the AI trade, with nine of the 11 sectors ending the month in negative territory. In Europe, the STOXX 600 Index underperformed, as rising government bond yields and expectations that the ECB would soon embark on a rate-hiking campaign curbed risk appetites. In Japan, the TOPIX rose, as expectations that the BOJ would soon quicken the pace of its rate hikes boosted index-heavyweight bank stocks. Meanwhile, in the developing world, Taiwan’s TAIEX and Korea’s KOSPI recorded solid gains, as the stock prices of semiconductor-linked companies, the flagship constituents of both indexes, rose on optimism about an enduring demand upcycle for memory chips despite calls for a slowdown in the development of AI’s capabilities.
Information technology was the best-performing sector in the month, as chip stocks rallied on optimism about the resilience of the demand upcycle for memory semiconductors. Materials was the worst-performing sector, as shares of gold miners fell in sympathy with the steep drop in the price of the precious metal amid a sharp rise in government bond yields.
Outlook
Uncertainty remains the defining feature of the investment landscape. Trade and tariff policy, geopolitical disruption, and a U.S.-Iran war now in its seventh month have lifted energy prices and renewed inflation risk, prompting rate increases from the Federal Reserve, European Central Bank, and Bank of Japan in September. Concern about sovereign deficits has pushed real yields and term premium higher, and unease is growing about the market’s dependence on AI and data-centre capital expenditure.
In this environment especially, we believe real asset securities – infrastructure in particular – play an important role in a balanced portfolio. The asset class is rightly regarded for offering diversification, typically below-average volatility (vs. broad market equities), above-average earnings visibility, and often less demanding valuation multiples that may be less susceptible to an aggressive de-rating experienced by growth stocks.
Essential services such as utilities and basic transportation infrastructure are also exposures we expect to prove defensive amid cautious consumer spending, while secular trends such as electrification are driving growth at a pace not seen in decades.
And within our digital infrastructure category, while concern has increased regarding a potential softening in the AI/data-centre capex cycle or valuation compression among AI-related companies, we think it is helpful to look beyond the data centres themselves.
The broader buildout also requires power generation, grid modernisation, communications, and equipment supply – and many of these businesses can benefit from data-centre demand alongside other long-term drivers, including electrification, EV adoption, building HVAC investment, and grid-reliability needs.
For investors concerned about potential multiple compression, the more relevant question may not simply be which companies are AI-adjacent, but which businesses have diversified sources of demand, essential roles in the economy, and cash-flow characteristics that may support resilience across market environments.
The current environment underscores several of the key secular investment themes that the Caldwell-Lazard CorePlus Infrastructure Fund is designed to emphasize, including energy transition (encompassing both renewable development and energy security) and the strengthening of global supply chain resilience and efficiency.
We believe the portfolio remains well positioned to capitalize on these opportunities across real asset infrastructure businesses as well as key enabling industries – including materials, services, and technologies – that both support and benefit from continued investment in critical infrastructure.
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Equity securities will fluctuate in price; the value of your investment will thus fluctuate, and this may result in a loss. Securities in certain non-domestic countries may be less liquid, more volatile, and less subject to governmental supervision than in one’s home market. The values of these securities may be affected by changes in currency rates, application of a country’s specific tax laws, changes in government administration, and economic and monetary policy. Emerging markets securities carry special risks, such as less developed or less efficient trading markets, a lack of company information, and differing auditing and legal standards. The securities markets of emerging markets countries can be extremely volatile; performance can also be influenced by political, social, and economic factors affecting companies in these countries.
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Published on October 21, 2026.