September was a difficult month for global markets as rising interest rates and renewed inflation concerns weighed on investor sentiment. The US Federal Reserve raises interest rates, leading to sharp increase in U.S. Treasury yields, together with higher oil prices, raised concerns that inflation could remain elevated and that central banks may have less room to cut interest rates.
The pressure was particularly visible in global equities, where higher bond yields reduced the attractiveness of risk assets. Technology and growth stocks were also affected because their valuations are more sensitive to changes in interest rates. The combination of higher oil prices, weaker global economic growth and rising borrowing costs created a challenging environment for investors.
The 10-Year Treasury Yield Becomes the New Market Risk
The sharp rise in the U.S. 10-year Treasury yield has become one of the most important risks facing global markets. The yield eventually reached around 5.18%, its highest level since 2007, while the 30-year Treasury yield climbed to 5.47%. Rising interest rates were one of the factors that contributed to the 2007–2008 Global Financial Crisis, as higher borrowing costs exposed weaknesses in the housing market and the financial system.
However, today's high interest rates may not wreak as much immediate havoc as they did during the 2007 crisis, as there are fewer signs of a comparable subprime mortgage bubble and excessive household borrowing. Nevertheless, the longer rates remain elevated, the greater the pressure on corporate financing, government debt servicing and consumer spending. The risk is that businesses and households that have grown accustomed to cheap credit will struggle to refinance their debt at much higher rates. If oil prices remain elevated and inflation prevents central banks from cutting rates, the resulting squeeze on economic activity could eventually trigger a recession and a broader bear market.
For equity investors, higher bond yields increase the opportunity cost of holding stocks and place particular pressure on high-valuation technology and growth companies. This has contributed to the broader weakness in global equities and raises the possibility that interest rates could remain higher for longer.
Oil and the Return of Inflation Risk
Oil prices have emerged as another major source of pressure on financial markets. Brent crude rose above US$100 per barrel as the Iran conflict continued, while the Houthis’ expanding threats to shipping in the Red Sea added to concerns over global energy supplies and trade disruptions.
Higher oil prices create a difficult situation for the global economy. They increase transportation and production costs while reducing consumers' purchasing power. At the same time, persistent energy inflation makes it more difficult for central banks to lower interest rates.
This creates a potential stagflationary environment, where economic growth slows while inflation remains elevated. For investors, this is particularly challenging because both equities and bonds can come under pressure at the same time.
Europe and China: Growth Remains Uneven
The economic data outside the United States also suggest that the global economy is not experiencing a uniform recovery.
Europe has shown some improvement, but growth remains modest. Eurozone GDP increased by 0.4% quarter-on-quarter in the second quarter of 2026. This indicates continued expansion, but only at a moderate pace.
China faces a different set of challenges. August manufacturing PMI remained below the 50 level at 49.8, while retail sales increased only 0.4% year-on-year. There are nevertheless areas of strength. Chinese industrial production increased 5.2% year-on-year in August, while high-tech manufacturing grew 16.7%. This suggests that China’s economy is increasingly dependent on selected areas of technology and manufacturing rather than broad-based domestic consumption.
For investors, this creates a more selective environment. The weaker economic data do not necessarily mean that China should be avoided, but they reinforce the importance of distinguishing between structural growth areas and the broader economy.
Gold: Why Has Its Value Fallen?
Gold has also come under pressure despite the geopolitical uncertainty and concerns surrounding inflation. The main reason is the sharp rise in bond yields. Gold does not generate interest income, so when Treasury yields rise significantly, the opportunity cost of holding Gold increases. Investors can earn a higher return from government bonds while taking less direct exposure to commodity price movements. Higher oil prices are also creating a paradox for Gold. Geopolitical tensions and inflation normally support Gold, but if the resulting inflation forces interest rates higher, rising real yields and a stronger U.S. dollar can outweigh the traditional safe-haven demand.
Portfolio Performance and Positioning Strategy
The portfolio declined in September, affected by the broad weakness in global equities, with the Cash portfolio -1.71%, CPF-OA -1.10% and SRS -1.71% .
The investment outlook remains complex. The AI-driven growth cycle continues to support technology stocks, as demonstrated by the NASDAQ reaching a new high in early October amid strong earnings and capital expenditure. However, persistently high oil prices could prolong inflation and keep interest rates elevated, putting pressure on global equities, particularly technology and other growth-oriented sectors. Maintaining a diversified portfolio remains essential to prepare for a potential bear market should AI expansion slow or corporate earnings fail to meet expectations. This approach helps balance growth opportunities with downside protection amid heightened uncertainty.
This high interest environment reinforces the importance of diversification and also flashing warning signs of a stressed economy. I am planning lower our 60/40 equity-bond positioning to 50/50 in the near future and reduce our weightage in either Technology or Gold given that they may be encountering less favorable macro economic environment down the road.
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