Markets Unwrapped: September 2026
September brought volatility across the month for investors, as renewed conflict in the Middle East pushed energy prices higher, forcing central banks across the world to take a firmer stance on controlling inflation. This incited higher interest rate expectations, which weighed on many share markets, although enthusiasm for artificial intelligence (AI) continued to provide pockets of resilience.
In Australia, the share market gave back much of its recent gains, with the Australian market falling for four consecutive weeks. Underlying inflation remained elevated above the Reserve Bank of Australia’s target, and the RBA opted to raise the cash rate to 4.60% at its late-September meeting on the 29th with officials signalling a further increase would not be ruled out. The renewed market sentiment of “higher for longer” interest rates has increasingly weighed on interest rate sensitive sectors such as utilities, property and technology, while energy and defensive sectors benefitted from geopolitical volatility from renewed conflict in the Middle East.
In the United States, the Federal Reserve raised interest rates for the first time since 2023. Underlying inflation was driven partly by higher petrol prices, and the Fed’s projections point to a further increase before year end, which is a notable shift from earlier in 2026 when markets were anticipating cuts. Shares proved relatively resilient, with technology and AI-related companies leading while the broader market was more subdued.
Europe’s exposure to energy costs was again evident. Rising inflation prompted the European Central Bank to lift rates for the second time this year, while the Bank of England held steady but signalled a growing willingness to act. European shares softened, even though economic growth has held up better than many feared. In Asia, the Bank of Japan also raised rates and South Korean chip stocks rallied on continued AI-related demand, while weak consumer spending and a soft property market in China added to calls for further government support.
The major driver in markets for the month was the flow-on effects of energy supply and interest rates. Renewed hostilities between the United States and Iran disrupted shipping through the Strait of Hormuz, pushing oil back above US$100 a barrel. Higher fuel costs flow quickly into inflation, where inflation is already above target in most major economies. The result has been a rare period of synchronised tightening and higher interest rate expectations for longer, placing pressure on the interest rate sensitive sectors and share market valuations broadly.
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