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Share markets on track for a fifth year of gains

Global share markets performed well in the first nine months of 2026, rising 15% in GBP terms. They remain on course for a fifth straight calendar year of gains since the 2020 downturn.

This growth comes despite ongoing conflicts in Ukraine and the Middle East. Oil prices climbed back above $100 a barrel, pushing up inflation and prompting central banks to project higher interest rates.

Why have share markets continued to rise? Put simply, global companies continue to make money. Corporate earnings have risen and beaten analyst expectations. In the second quarter, roughly 85% of S&P 500 companies in the US reported better earnings than predicted. That flows directly back into share prices as earnings trajectory heavily influences market perceptions on company valuations.

Much of this momentum comes from tech giants investing in artificial intelligence (AI) infrastructure. These firms are forecast to spend close to $750 billion on AI hardware and networks in 2026. Semiconductor maker Nvidia reached a valuation of over $5 trillion. Taiwan Semiconductor Manufacturing Company (TSMC) grew revenue by 50% last year and targets 30% to 40% growth this year.

Global stock markets are increasingly concentrated in tech

Rapid growth in AI means investors often hold high exposure to just a few companies. TSMC now represents around 15% of the MSCI Emerging Markets equity index. In the US, seven tech companies make up roughly a third of the S&P 500: Nvidia, Apple, Microsoft, Alphabet (Google), Amazon, Meta, and Broadcom.

Concentration works well while these companies perform, but shifts in market sentiment pose a genuine risk. Broader market growth will need support from multiple areas. Key factors include lower trade tariffs, reduced geopolitical tension, and resolution to conflict in Ukraine.

Rising bond yields and government borrowing costs

While shares rose, aggregate bond markets fell by roughly 3% year to date. Two main factors drove this decline.

First, persistent inflation caused central banks to pause interest rate cuts and warn of potential increases. Higher interest rates reduce bond prices.

Second, the scale of AI spending prompted large tech firms to borrow heavily in bond markets. Amazon, Alphabet, Microsoft, and Meta issued more than $200 billion in corporate bonds in the first eight months of 2026. Total AI-related borrowing could reach $500 billion this year across energy grids, data centres, and microchip fabrication. This surge in bond supply lowers prices and pushes yields up.

Higher corporate bond yields spill over into government debt. The yield on 10-year UK Gilts reached 5.54% in late September before settling near 5.39% in early October. This makes borrowing more expensive for governments. UK debt interest payments hit a record £12 billion in May alone. If we extrapolate over a full year, this would be half the total spend on health and social care, equal to education spend, and twice as much as we spend on defence. 

As we approached the first budget (28 October) with Andy Burnham as PM and John Healey as chancellor, they were tasked with balancing the competing requirements for fiscal prudence (which has been watched closely by bond markets) and public expenditure, whilst limiting any tax rises, which could be considered anti-growth and or unpopular.

To find out more about what Bonds are and how the shifting yields could impact your investments, click here.

Octopus Money Direct investment funds 

The first nine months of 2026 proved positive for most of our funds. Portfolios with a higher allocation to shares performed best, led by the Global Share Fund (+15.8%). Only the Bond Fund posted a negative return.

Defensive Fund: +2.4% year to date

The Defensive Fund gained 2.4% in 2026 to the end of September. This is a solid return given that bond markets were broadly negative.

The fund beat its performance comparator by roughly 1.5% year to date, and returned 4.2% versus 2.0% over 12 months. Holding short-maturity bonds (under five years) and higher cash levels helped protect capital. A near-20% allocation to shares also supported returns earlier in the year.

Bond Fund: -3.2% year to date

The Bond Fund fell 3.2% so far in 2026, trailing its benchmark (-2.1%).

The fund held longer-duration bonds of 15 years or more, which underperformed shorter duration bonds. Expectations of prolonged higher interest rates (rather than rate cuts) has seen a negative reaction from the bond markets. 

Higher interest rates makes the income (often fixed) from bonds less attractive, and their value falls, pushing yields up to compensate. Whilst rising yields are indicative of falling bond values, it does mean when we buy new bonds, we are receiving a higher yield for each £1 invested.

Growth Funds 1, 2 and 3: +4.0%, +9.4% and +13.5% respectively

Our Growth Funds delivered returns in line with their risk profiles.

Growth Fund 3 led the way with a 13.5% return, thanks to its high allocation to shares. What bonds it holds (around 8%) are higher-yielding assets that carry less sensitivity to interest rates. The Fund invests more in Asian and Emerging Markets than its performance comparator, beating it by over 2% year to date. A standout performer was the Aberdeen Evolve Asia Pacific ex-Japan Equity Index fund, up nearly 25%. We choose Aberdeen Evolve funds because they align with our responsible investment policy, for example avoiding tobacco and coal-derived revenues.

Growth Fund 1 (+4.0%) and Growth Fund 2 (+9.4%) also achieved positive gains. Both beat their comparators, though their higher bond holdings (compared to Growth Fund 3) moderated overall returns. Compared to their performance benchmarks, Growth Fund 2 outperformed by about 1.5%, whilst Growth Fund 1 was ahead by about 1%, so good results across the range in keeping with their risk profiles.

UK Index Tracker Fund: +9.6% year to date

The UK market experienced a broad summer rally. The FTSE 100 reached record highs in late July before pulling back modestly as inflation concerns returned.

Higher interest rates saw strong net interest margins from the banking sector (+21%), while higher commodity prices lifted oil and gas (+33%) and materials (+27%). In contrast, household goods fell 17%. Reckitt Benckiser, maker of diverse brands such as Dettol, Nurofen and Vanish, fell 20%, impacted by cost inflation and retailer destocking which led to the double whammy of lower sales and lower margins.

Global Share Fund: +15.8% year to date

The Global Share Fund returned 15.8% in the first nine months, beating the MSCI All Countries World Index by 1.3%.

Allocating more to Asia and Emerging Markets and less to North America supported outperformance. The standout performer has been the Aberdeen Evolve Asia Pacific ex-Japan Equity Index fund which returned nearly 25%. 

The Fund is close to its maximum 10% allowed (so therefore underweight) to North America.  We feel this is important as the US market is becoming quite concentrated in the large tech firms, and more prone to correction (risk of falling values) than other markets. The American equity funds held returned 14-15%. The UK has been a relative underperformer so far this year, with the Aberdeen Evolve UK equity index fund returning a more modest 7.7%, a little behind the broad UK market with lower exposure to oil and gas (whose stocks outperformed).

Climate Change Fund: +8.3% year to date

The Fund has shown good growth so far this year, with holdings in tech firms Nvidia, TSMC and Broadcom all performing well. Nvidia, the largest company in the world (by market size) and also currently the largest holding within the Fund, returned just over 15%. Their advanced chips, used in many computing and tech applications are more energy efficient than traditional CPUs, plus Nvidia are committed to achieving 100% renewable energy across their operations.

Ireland based Trane technologies, who develop energy-efficient heat and cooling systems that help AI data centres, also performed strongly, +16%. Q3 earnings are expected to increase over 20% compared to last year.

However, a number of companies have fallen in value during 2026, dragging the return below the fund’s benchmark return, which was 14.5%. Deere & Co. (-6%) and L’Oréal (-5%) were two notable underperformers. Deere & Co. have been impacted by weak demand for new agri machinery, plus rising costs.

A new addition to the Fund is RELX, a UK technology company, and provider of info based analytics and tools, focussing on professional sectors such as legal, science and medical firms. They are committed to net-zero emissions by 2040.