PWM Wealth Weekly Market Review

Market Snapshot

Why We Quote the ARC Benchmark

To help put your portfolio’s performance into proper context, we compare it with the ARC Private Client Index. Unlike a stock-market index such as the MSCI World, ARC measures the actual, net-of-fee returns achieved by professional wealth managers across diversified portfolios containing investments such as equities, bonds, cash, structured products and alternatives. Portfolios are grouped according to their level of investment risk, allowing us to compare your results with portfolios managed to a broadly similar risk profile. We therefore believe ARC provides a fairer and more meaningful measure of how your overall portfolio has performed relative to both the level of risk taken and the wider wealth-management industry.

Are ARC Benchmarks independent?

ARC figures are independent of PWM Wealth and any individual investment manager. The benchmark is compiled by S&P Dow Jones Indices using actual performance data submitted by a broad group of participating wealth managers. The important distinction is that the underlying returns come from the participating managers, but they are independently checked, grouped by risk level and aggregated to produce the ARC benchmark. No single manager determines the result. The dataset currently represents approximately 500,000 portfolios across more than 140 wealth managers.

ARC USD Equity Risk PCI - Dec 03

+6.8% YTD

ARC USD Balanced Asset PCI

+4.5% YTD

ARC USD Cautious PCI - Dec 03

+1.8% YTD

ARC USD benchmark figures are the latest S&P Dow Jones Indices Q3 2026 performance estimates through September 2026. Figures shown are year to date.

Summary

Bond markets were again the greatest source of volatility, with French OATs (sovereign bonds) at the epicentre of the global sell-off; the rout reflected deepening investor concern over France's missed deficit targets and political gridlock; the OAT-Bund spread widened to 140 basis points (bps), a level last seen in 2012 during the Eurozone debt crisis; UK gilts performed relatively well by comparison.
Economic data was mostly healthy with economic growth in the second quarter revised higher for both the US and the UK; global manufacturing activity continued to grow, according to recent data; the September US labour market report was the weak spot as job growth came in at 29,000 well below expectations, job growth in July and August was also revised lower by 60,000
Energy prices remained volatile with Brent crude oil rising above US$108 a barrel (bbl) earlier in the week before settling at US$102/bbl; the G7 nations announced plans to release as much as 100 million barrels of emergency oil and diesel reserves following pressure from the Trump administration; the deal followed a US threat to restrict diesel exports unless European countries agreed to release reserves.

Market Review

France's fiscal reality - should the UK be concerned for themselves?

Friday saw a sharp rally for global bonds and it’s not unusual during bear markets to see very good days - they usually follow particularly nasty selloffs. What was notable however about the rally on Friday was which countries were left behind: France, Italy and Greece.

A common way to measure how investors view a country's financial strength is to compare its government bond yields with those of Germany, which is seen as Europe's safest borrower. The gap between 10-year French and German government bond yields widened from 0.71% at the start of the year to 1.40% by the end of last week, reaching its highest level since the European debt crisis in 2012. This reflects growing investor concerns about France's finances.

While UK government bond yields are higher than those of other G7 countries, a more meaningful comparison adjusts for differences in interest rates and currency costs. On this basis, 10-year French government bonds currently yield 6.51%, compared with 5.37% for UK gilts, meaning investors receive around 1.14% more to hold French debt (sterling hedged) than UK debt.

French equities are also struggling this year having fallen 5.9% while global equities have risen 14.3%, all in GBP terms.

Earlier during September, France officially missed its 2026 budget deficit target of 5% with the shortfall coming in at 5.4% of GDP – sluggish growth was a key factor. France's 2027 budget aims to reduce the deficit to 5%, but doing so would require significant austerity.

The political gridlock makes any budgetary progress difficult; France is on its fifth prime minister in two years. With a split government France has been effectively unable to pass fiscal plans. The 2026 budget was rolled over from 2025 and forced through via a constitutional mechanism without a parliamentary vote after cross-party talks repeatedly failed.

The French are set to go to the polls in May 2027 meaning there is very little incentive for opposition parties to support painful and unpopular austerity measures. France’s 2029 deficit target of 3.0% looks particularly quixotic in this context and the bond market has shown no hesitation in pricing this in.

There is some speculation that the European Central Bank (ECB) will step in to support the French bond market (and possibly the other struggling peripheral countries, Greece and Italy) however the conditionality of such intervention currently requires fiscal compliance with EU rules, with which France is in violation.

France also suffers from a relatively low level of domestic ownership of its bond market which while it may point to a structural weakness could also contribute to a solution if policies are put in place to encourage greater domestic investment.

France should be a warning signal to UK Prime Minister Andy Burnham of the risks of deferring difficult decisions. Labour have the opportunity afforded by a majority to put a multi-year fiscal path in place. Second, the UK should look to incentivise domestic ownership of UK assets, France’s low domestic ownership of OATs has created structural vulnerabilities and amplified the selloff. Third, Burnham’s plans to soften the triple lock (where state pensions rise annually by the highest of either 2.5%, inflation or wage growth) is the kind of decision that French policy makers have not been able to make and that the bond market will reward. The move to a double lock of 2.5% or inflation is a step in the right direction, the case for going further is strong.

There are signs that the UK is on the wrong side of the Laffer curve (a point where raising taxes further can reduce the amount of tax the government collects), yet any reductions in the tax burden seem unlikely. It is probable that for the years ahead higher taxation will remain the principal tool for balancing the books. That makes fiscal credibility elsewhere even more important. The lesson from France is that difficult fiscal decisions do not become easier by delaying them. Eventually, the bond market will force your hand.

United States

The US market continues to balance a resilient economic backdrop against a more complicated interest-rate environment. Growth has held up better than expected and second-quarter activity has been revised higher, but the September labour report introduced a clear note of caution after payroll growth slowed materially and previous months were revised lower. For equities, this creates a mixed but still constructive picture: slower employment growth could eventually reduce pressure on inflation and interest rates, while healthy corporate earnings and continued investment in technology and productivity remain supportive. The principal risk is that long-term Treasury yields remain elevated even as employment cools, which would tighten financial conditions and place greater pressure on highly valued areas of the market. A broader contribution to earnings from companies outside the largest technology names would be particularly encouraging and would give the US market a more balanced foundation for future returns.

Europe

Europe has become the focal point of the latest global bond-market volatility, with France highlighting the importance of fiscal credibility when government borrowing is high and investors are demanding greater compensation for risk. The widening gap between French and German yields has created pressure across regional assets, although conditions differ significantly between individual European economies and companies. This distinction matters for investors: Europe is not a single economic exposure, but a collection of markets with different fiscal positions, industries and sources of revenue. Many of its leading businesses generate substantial earnings globally, while valuations across parts of the region remain less demanding than in the US. If political uncertainty stabilises and policymakers can demonstrate credible fiscal plans, the recent volatility could ultimately create selective opportunities. In the meantime, disciplined diversification across countries and industries remains particularly important.

Global Markets

Global markets are navigating an unusual combination of resilient economic activity, volatile energy prices and pressure in sovereign bond markets. Manufacturing data indicate that the global economy is still expanding, while corporate earnings remain an important anchor for equities, but higher government borrowing costs are forcing investors to reassess valuations across asset classes. Energy remains another important variable: oil above US$100 a barrel can keep inflation pressures alive, although coordinated reserve releases may help limit the impact of supply disruptions. The key distinction for markets is whether higher yields represent a controlled adjustment to stronger nominal growth or a loss of confidence in fiscal sustainability. The former can coexist with positive equity returns if profits continue to rise; the latter would be more disruptive. This environment strengthens the case for spreading exposure across regions, currencies, asset classes and investment styles rather than depending on one market or theme.

The Week Ahead

US trade balance:

The trade deficit is expected to have widened through August from US$88.6bn to US$102.3bn. This would be the widest since imports were front loaded ahead of the ‘Liberation Day’ tariff announcement in March 2025. While industrial supplies are anticipated to have boosted imports, exports have likely increased as the US has increased exports of oil and refined products.

Central bank minutes:

Minutes from the ECB and US Federal Reserve (Fed) meetings are due this week. Amidst the global bond bear market central banks are becoming more hawkish but the ECB will be cautious given the limited signs that higher energy prices are feeding through into broader inflation. The Fed meeting was notably more hawkish however the meeting predated the weaker jobs report and soft PCE inflation report from last week complicating the picture. Altogether both central banks are expected to hike once further this year with that hike expected at the December meetings.

PWM View

Recent volatility is a reminder that investment returns are rarely delivered in a straight line, but we continue to see a constructive longer-term backdrop. Economic activity remains broadly resilient, businesses continue to invest and corporate profitability provides an important foundation for portfolios even as governments and central banks work through more difficult fiscal and inflation choices.

One positive feature of the current environment is that investors have more genuine choice across asset classes. Higher yields have improved the potential income available from quality fixed income, while equity markets across different regions provide exposure to a wide range of businesses, industries and long-term growth drivers. This creates opportunities to build portfolios from several sources of return rather than relying excessively on one area.

We also believe periods of market dislocation can create attractive opportunities for patient investors. Fiscal concerns, political uncertainty and changing interest-rate expectations can cause prices to move more quickly than underlying business fundamentals. A disciplined approach allows portfolios to rebalance toward assets where prospective returns have improved while retaining exposure to areas with strong long-term fundamentals.

Our overall view therefore remains positive, but deliberately broad. Diversification across regions, asset classes and investment styles remains central to managing uncertainty and participating in global growth. By maintaining a long-term perspective and avoiding excessive reliance on any single market outcome, investors should be well positioned to benefit as opportunities evolve.