Highlights
- September proved challenging for investors as higher energy prices renewed concerns about inflation and the outlook for interest rates.
- The US Federal Reserve and European Central Bank raised interest rates, while the Bank of England left rates unchanged.
- Government bond markets sold off as investors adjusted their expectations for monetary policy, pushing yields to multi-decade highs.
- Equity markets were more resilient, with US technology companies delivering some of the strongest returns.
- The OCM portfolio suite has delivered strong performance so far this year. As we head into the fourth quarter, we continue to monitor investment conditions carefully, maintaining our disciplined focus on managing risk and supporting positive long-term outcomes.
Geopolitical Tensions Drive Market Volatility
Ongoing geopolitical turbulence in the Middle East continued to influence global financial markets in September. Hopes of a diplomatic resolution faded despite Tehran presenting its terms for reopening the Strait of Hormuz, with the US instead choosing to maintain the blockade and economic pressure.
The continued disruption to shipping contributed to a sharp rise in energy prices, with oil moving above $100 per barrel during the month. Consumers are beginning to feel the effect through higher prices at the pump, while UK households face the possibility of a significant increase in the Ofgem Energy Price Cap in January.
The rise in energy costs has implications beyond household finances. Higher oil and gas prices increase costs for businesses, place further pressure on government support measures and make the task facing central banks more difficult. Although inflation has fallen from its previous highs, it has remained above target across several major developed economies since 2021. Policymakers are therefore alert to the risk that an energy shock could feed into broader price pressures.
These concerns led financial markets to reassess the likely path of interest rates. Government bond yields rose sharply as investors priced in a greater chance that rates would remain higher for longer, or need to rise further. US Treasuries came under particular pressure, contributing to a wider sell-off across global fixed-income markets. Investment-grade and high-yield bonds were also affected, offering investors relatively little protection during the month.
Central Banks Respond to Inflation Risks
The US Federal Reserve became the latest major central bank to raise interest rates, voting unanimously for an increase of 0.25 percentage points—its first rate rise in three years. The decision was well received by markets and reinforced Fed Chair Kevin Warsh’s recent message that policymakers would act if renewed inflationary pressures persisted.
The European Central Bank also raised interest rates for a second time this year. Inflation across the eurozone has continued to rise, while economic growth has proved more resilient than many investors expected. This combination has increased the pressure on the central bank to keep price pressures under control.
The Bank of England took a more cautious approach and voted 6–3 to leave rates unchanged. Energy price inflation has not yet fed meaningfully into underlying domestic price pressures, allowing policymakers to wait for further evidence before acting. However, several members of the committee acknowledged that a prolonged period of elevated energy prices could eventually require higher interest rates.
Financial markets have moved quickly to reflect the risk of further rate increases. In our view, however, central banks are more likely to be recalibrating policy in response to the latest energy shock than beginning a prolonged cycle of monetary tightening.
The economic backdrop is different from 2022, when inflation became more broadly embedded and central banks were forced to raise rates rapidly. Economic growth is now more moderate, monetary policy is already restrictive and inflationary pressures outside the energy sector appear better contained. While further action cannot be ruled out, we believe the scale of the recent adjustment in bond markets may prove excessive.
Equities Show Greater Resilience
Equity markets held up better than fixed income during September, supported by resilient economic activity and positive corporate earnings. US technology companies were among the strongest performers, with enthusiasm around artificial intelligence continuing to support the sector.
The rollout of Meta’s latest AI model helped lift sentiment, while expectations of continued growth in demand for memory chips and processing power supported other technology companies. These gains helped offset some of the wider concerns surrounding higher borrowing and input costs.
Nevertheless, investor sentiment became more cautious as the month progressed. Valuations remain elevated in parts of the US market, while companies may face pressure on margins if energy and financing costs remain high. This creates an environment in which individual company performance and active investment selection are likely to remain particularly important.
UK Politics Moves into Focus
Attention in the UK is now shifting towards the Autumn Budget. Investors will be looking for greater clarity on how the government intends to fund increased defence spending, support households facing higher energy and fuel costs, and address longer-term priorities such as social care.
The UK economy continues to face a difficult combination of low productivity growth, elevated inflation and rising debt-servicing costs. These pressures restrict the government’s ability to increase spending without raising revenue or making savings elsewhere.
The Labour Party Conference provided some indication of the government’s priorities, including proposals relating to the state pension triple lock, a national care service and the future ownership of water companies. Financial markets took the conference largely in their stride, as no clearly inflationary policies were announced. However, the Autumn Budget will be an important test of the government’s fiscal plans and may prove influential for UK assets.
Maintaining a Long-Term Perspective
Short-term market turbulence has become increasingly common as geopolitical, economic and political risks interact. Monthly portfolio returns can fluctuate significantly as investors respond to changing expectations for inflation, interest rates and economic growth.
Against this backdrop, we continue to focus on diversification, active management and maintaining an appropriate balance between risk and return. Although performance varied across the portfolio range during September, the OCM portfolio suite remains in a strong position on a year-to-date basis.
Our priority is to manage portfolios through a range of market conditions rather than chase the strongest-performing assets after they have risen. This disciplined approach may lead to periods of relative underperformance, but we believe it remains the most appropriate way to support positive long-term outcomes for clients.
Past performance cannot be used as a guide to future performance and the value of your investment will fall as well as rise in value. You may not get back all your investment and the final value of your investment will depend on the performance of your portfolio. The actual performance of an individual client’s portfolio may differ due to different funds being used and being restricted in relation to certain asset allocations. Performance figures quoted include fund manager charges but exclude adviser, discretionary, custodian and switch charges. Unless stated, income is reinvested into the portfolio. The information contained in in this document is for information purposes only. It does not constitute advice or a recommendation or an offer or solicitation for investment. OCM Wealth Management Limited is authorised and regulated by the Financial Conduct Authority (FCA Registration No: 418826) OCM Asset Management is a trading name of OCM Wealth Management Limited
