Equities markets delivered positive returns for the third quarter of 2026, powering past a surging oil price, interest rate hikes from central banks around the world, and major sell-offs in global bond markets. A resilient US economy, robust second-quarter corporate earnings results, and continued faith in the AI theme were among the factors supporting markets amid adverse events.
The S&P 500 delivered a total return of around 2.3% for the quarter, despite a decline of around 0.4% in September, which saw markets reverse slightly after a strong three months. The index ended September some 1.8% down from the record high recorded on 13 August. The S&P 500 delivered a return of nearly 13% through the first three quarters of 2026, outperforming typical midterm-election-year patterns.
Similarly, the MSCI World Index, which captures large and mid-cap representation across 23 developed markets, delivered a return of approximately 2% in US dollars for the quarter. This brought its return in US dollars for the year-to-date to approximately 13%. The performance of the MSCI World and S&P 500 were boosted by exceptional performance from the tech sector, with the S&P 500 IT segment delivering a return of more than 8% and the tech-heavy Nasdaq Composite delivering a return of about 2.8% for the quarter.
The MSCI Emerging Markets Index, however, delivered a return of around -1.3% in US dollars for the quarter as heavyweight Asian semiconductor stocks, which have powered gains for much of the year, took a breather. Notwithstanding, our preferred EM Fund has delivered a return of 27.9% year-to-date. The Dow Jones Industrial Average, which mostly tracks old-economy stocks, delivered a return of about – 2.5% during the quarter. This paints a picture of how equities’ gains this year have been driven by technology stocks – both in developed as well as in emerging market indices.
JSE wilts under pressure
Turning to South Africa, the JSE has delivered disappointing returns for the year thus far. The FTSE/JSE All Share declined by 0.3% in rand for the third quarter, bringing its return decline for the first three quarters of 2026 to around 3.2%. This is a sharp reversal from 2025, when the ALSI outperformed most global indices, delivering a return of 42% in rand for the year. Negative returns from precious-metal miners have been the biggest driver of the JSE’s poor performance year-to-date, whereas, in 2025, it was soaring demand for precious metals that drove the exceptional performance of the bourse.
With gold-driven rally having faltered, South Africa Inc. stocks are not delivering sufficient growth to lift the ALSI’s performance, this being symptomatic of tepid GDP growth.
The South African rand though, has benefited from relatively high interest rates for much of 2026, trading at an average of R16.41 against the US dollar year-to-date, stronger than R17.87 in 2025 and R18.35 in 2024. But as September ended, we saw signs of rand weakness as the US dollar strengthened and risk appetite diminished amidst the global bond rout.
Global outlook for the next quarter
AI, interest rate trajectories and the oil price will continue to be the key themes for global equities markets for the remainder of the year. In addition, we can expect US markets to be unsettled by the upcoming midterm elections. Historically, it is not unusual to see a temporary pre-election dip or some volatility as investors assess political risk, followed by a relief rally.
Inflation, fueled by high oil prices, continued concerns about tariffs and trade wars, and ongoing bond market fears are all risk factors for global markets. However, if the AI trade remains strong and the data centre infrastructure boom continues, equities performance may surprise on the upside, especially if US consumer spending holds up as well as it has throughout the year.
S&P 500 third quarter 2026 earnings are forecast to grow by 29.5% year-over-year according to FactSet Earnings Insight, marking the third consecutive quarter of earnings growth above 25%. Downside surprises would be negative for a market that has come to expect exceptional growth from tech companies.
Investors will also be watching whether the Fed follows up on its quarter-point interest rate hike in September with further increases. Market participants expect the Fed to hold the rate at its October meeting due to weaker labour data for the month of September. However, if the US-Iran war remains unresolved and oil prices stay above $100, we may see another hike in December.
South Africa – elections on the horizon
We maintain our conviction that growth opportunities in South Africa are not as compelling as global developed markets or emerging market peers. Not only is the local economy delivering slow growth, but the JSE offers limited exposure to global growth themes such as AI and semiconductors. We may see political risk rise ahead of the local elections in November and then subside if the voting process is peaceful and there are no major surprises.
The Currency Decoder from Advantage, an algorithmic method for estimating the fair value for any currency pair on a dynamic basis, prices the rand significantly weaker than current levels, with fair value estimated to be around R18.61.
In the first two days of October, the rand depreciated by 1.8% against the US dollar. By comparison, emerging market peers’ currencies declined by a more modest 0.2%. The rand, as a liquid and heavily traded currency, is sensitive to global risk. However, the investment case for global equity exposure is more about the longer-term opportunity set, which in our view, overrides current exchange-rate considerations.
