Quarterly Compass — September Quarter 2026

What happened in investment markets, and what it means for long-term investors.

Covering 1 July to 30 September 2026

The quarter in brief

Shares went mostly sideways, bonds lost money, and interest rates went up. That is the September quarter in one line. Here is a little more detail.

• Shares drifted. Australian shares returned 1.3% for the quarter and global shares 1.5% (both in Australian dollars) [JPM p.68]. The US market gained just 1.4%, after a 15.7% surge the quarter before [Morningstar Q3 p.3].
• Bonds had a rough quarter. Long-term interest rates hit their highest levels in about 20 years, in both the US and Australia [VanEck p.1]. When rates rise, existing bonds fall in value. Australian bonds lost 1.5% and global bonds lost 2.9% [JPM p.68].
• Central banks raised rates. The US Federal Reserve lifted rates for the first time in three years, to 3.75–4.00% [Morningstar Q3 p.8]. Europe and Japan also raised rates [Vanguard pp.9, 14]. In Australia, inflation stayed stuck at 3.6% (trimmed mean) and most forecasters now expect at least one more RBA rise [Vanguard p.2; VanEck p.10].
• Listed property was the weak spot. Australian listed property (A-REITs) fell 9.3% for the quarter, because property trusts are very sensitive to rising interest rates [JPM p.68; Morningstar Q4 p.6].

Source references like [JPM p.68] point to the documents listed under Sources at the end.

Interest rates and bonds: the big story of this quarter

The bond market was where the action was. Long-term interest rates rose to levels not seen in about 20 years, and that affects almost everything else.

A quick explainer. A bond is a loan to a government or company. The “yield” is the interest rate on that loan. When yields rise, two things happen: new bonds pay more income, but bonds people already own fall in price. Rising government bond yields also push up borrowing costs for businesses and households, and they make shares look less attractive by comparison.

What happened. The US 10-year government bond yield passed 5% in mid-September and reached 5.29% by the end of the quarter, up from about 4.3% six months earlier. The US 30-year yield reached 5.64% [Morningstar Q3 p.7]. Australia’s 10-year yield also hit a 20-year high [VanEck p.1]. Because prices move the opposite way to yields, long-dated US government bonds lost 8.0% in the quarter [Morningstar Q3 p.3].

Why it happened. Four things pushed yields up: inflation that will not come down, economies that keep growing, large government deficits, and a wave of new debt sold to fund the AI building boom [Morningstar Q3 p.7]. US government debt passed US$40 trillion, about 120% of the size of the US economy, with a budget deficit running at 6% of GDP [VanEck p.5]. Investors have started to demand more interest to lend to governments with finances like that. This is sometimes called the “bond vigilantes” effect: when bond buyers go on strike, yields rise and governments are forced to listen [VanEck p.6].

Central banks responded. The US Federal Reserve raised its rate by 0.25% to 3.75–4.00%, its first rise in three years [Morningstar Q3 p.8]. The European Central Bank lifted its rate to 2.5%, its second rise this year, and the Bank of Japan raised to 1.25% [Vanguard pp.9, 14]. The Bank of England (3.75%) and Bank of Canada (2.25%) stayed on hold [Vanguard pp.5, 7].

And in Australia. Inflation is stuck. Trimmed mean inflation (the RBA’s preferred measure, which strips out the wildest price moves) sat at 3.6% in August, with headline inflation at 4.0% [JPM p.5]. The economy grew a better-than-expected 0.4% in the June quarter and 2.1% over the year [Vanguard p.1], and unemployment was 4.6% in August [JPM p.9]. The 6% rise in the minimum wage and 4.75% rise in award wages from 1 July are adding to cost pressures [VanEck p.1], while productivity has been falling [Vanguard p.1]. That combination leaves the RBA with little room to cut, and most forecasters expect it to raise rates again before Christmas (see the forecasts section below).

What it means for investors. Cash and term deposits are paying more. New bonds are paying higher income than they have in years. Existing bond holdings have taken a short-term hit, but the higher income they now earn helps make that back over time [JPM p.48]. VanEck’s view is that higher-quality bonds, bought at today’s higher yields, could be a sensible place to be [VanEck p.1].

Shares: Treading water, with a few standouts

Australia. The ASX 200 returned 1.3% for the quarter [JPM p.68], which VanEck describes as flat [VanEck p.1]. Energy stocks did well as oil rose, and healthcare was lifted by one company, CSL, after its results suggested its operational troubles may be behind it [VanEck p.1]. Smaller companies lagged, with Australian small caps down 0.5% [JPM p.29]. The bigger picture is that the RBA is deliberately keeping a brake on the economy, and that has left the local sharemarket without much momentum [VanEck p.10].

Global. In Australian dollar terms, Japan was the standout at 6.9%, the US returned 1.9%, emerging markets lost 0.7% and Europe lost 2.0% [JPM p.29]. Under the surface the US market was a tale of two halves. Chip and memory stocks, the big winners of the first half of 2026, were among the hardest hit this quarter. Software stocks went the other way, with Microsoft up more than 33% [Morningstar Q3 pp.2, 5]. Energy was the strongest sector, up almost 16% [Morningstar Q4 p.6]. Gold miners also had a strong quarter [VanEck p.1].

One warning sign: US indexes are near record highs, but that is because a handful of giant AI companies keep rising while a large number of other stocks are struggling. Morningstar calls market “breadth” particularly poor [Morningstar Q4 p.3].

Are shares expensive? The experts disagree. This is worth being upfront about, because the professionals in our source material do not agree.

• Morningstar estimates the US market is trading about 10% below its fair value. But all of that discount sits in just seven mega-cap AI-related stocks (Nvidia, Alphabet, Broadcom, Microsoft, Meta, Amazon and Tesla). Take those out and the rest of the market is roughly fairly priced [Morningstar Q4 pp.1–2].
• VanEck takes a different view. It argues that with bond yields at 5%, the extra return investors normally get for taking on the risk of shares has effectively disappeared [VanEck p.2].
• P. Morgan’s data sits between the two: the US market trades on 19.1 times next year’s earnings, against a long-run average of 16.9 times, so about 13% above its historical norm [JPM p.39]. Australian shares sit at about 17.3 times [JPM p.30].

In plain terms: whether you think shares are cheap depends heavily on whether you think the AI giants will deliver on their promises.

AI: boom or bubble? This is the live debate among investment professionals right now, and we are not going to pretend it is settled.

• The case for caution. VanEck notes the biggest US tech companies are expected to spend close to US$2 trillion on AI infrastructure over the next two years. To justify that, AI has to be hugely transformative and those companies have to capture enough of the benefit to earn a decent return. History is not encouraging: past booms, from railroads to fibre optics, delivered benefits to society but often sent the frontier companies broke first. The cost of insuring the big tech companies’ debt against default has also started rising [VanEck pp.3–4].
• The case for optimism. Morningstar’s view is that investors are underestimating the earnings and cash flow these companies could generate over the next three to five years, which is why it rates them as undervalued [Morningstar Q4 p.2].
• The scale.P. Morgan’s data shows the five largest US AI spenders are expected to invest about US$799 billion in 2026 and US$1.09 trillion in 2027, up from US$416 billion in 2025 [JPM p.44].

The one thing all three agree on is that the outcome will matter a great deal for sharemarket returns, which is a strong argument for not betting the whole portfolio either way.

Property, cash, currency and commodities

Australian housing. House prices are coming down from their peak. VanEck puts it bluntly: the housing market is correcting, and nobody knows how far [VanEck p.10]. Vanguard notes the softer market has not yet dented household spending in a meaningful way [Vanguard p.1]. Higher mortgage rates are the main reason, and with the RBA still leaning towards rate rises, that pressure is unlikely to ease soon.

Listed property. Australian listed property trusts (A-REITs) were the worst-performing mainstream asset in the quarter, down 9.3%, and are down 13.2% for the year to date [JPM p.68]. Property trusts behave a lot like bonds: when yields rise, they fall. Morningstar makes the same point about US real estate stocks, which it now rates as undervalued after the sell-off [Morningstar Q4 p.6]. Global infrastructure was also weak for the same reason [VanEck p.1].

Cash. Boring, but reliable. Australian cash returned 1.1% for the quarter and 3.1% for the year to date [JPM p.68], and with the RBA likely to go higher, those rates should hold up.

The Australian dollar. Two things drive our dollar: commodity prices and the gap between Australian and US interest rates [JPM p.63]. Both the RBA and the Fed have been raising rates, so neither side has pulled decisively ahead, and commodity prices have held up. For investors in global shares, currency swings matter: J.P. Morgan’s figures above are all in Australian dollar terms, so they already include the effect.

Gold. Gold ended the quarter at about US$4,171 an ounce [JPM p.62]. It tends to do well when investors are worried, and this quarter they were worried about government debt and the Middle East. With mining costs well below the gold price, gold miners are earning unusually strong margins [VanEck p.9]. VanEck’s warning is that a stronger US dollar or higher real interest rates could knock gold back after its strong run [VanEck p.9].

Oil and commodities. Brent crude finished the quarter at US$98 a barrel [JPM p.59] after spiking above US$107 (WTI) in mid-September when fighting involving Iran resumed [Morningstar Q3 p.6]. Oil is the single biggest reason inflation has gone back up this year [Morningstar Q3 p.6]. For Australia, iron ore sat at US$97 a tonne and copper at US$14,740 a tonne at quarter-end [JPM p.61], which supports our export income.

Looking back: 2025 and 2026 so far

The past year has been kinder to shares than to bonds and property. 2025 was a good year across the board, and most of 2026’s gains in shares came in the first half of the year, before the bond sell-off took hold [JPM p.68].

J.P. Morgan Guide to the Markets, 4Q 2026, p.68 · unhedged total returns in AUD · A-REITs = Australian listed property

The chart shows calendar 2025 and 2026 to date. Emerging market shares (think China, India, Korea and Taiwan) have led in both periods, helped by the global AI building boom [Vanguard p.12] and by local-currency bonds that have beaten US government bonds this year [VanEck p.8]. In US dollar terms, the US market has returned 15.3% over the 12 months to September and emerging markets 26.2%, while US bonds have lost 1.8% [Morningstar Q3 p.3].

Two longer-term points worth keeping in mind. First, over the past 15 years global shares have returned about 15.5% a year and Australian shares about 9.8% a year in Australian dollar terms, with bonds and cash at 2.5–3.0% [JPM p.68]. Second, the Australian sharemarket has seen an average fall of 13.8% at some point during each calendar year since 1994, yet finished the year higher in 23 of those 32 years [JPM p.69]. Wobbly quarters like this one are normal, not a signal.

What the professionals expect next

These are the views of the fund managers and research houses in our source material, not Wealtheon’s forecasts. Where they disagree, we say so. Forecasts are educated guesses and are often wrong.

The common thread: nobody in our source material expects interest rates to fall meaningfully in the next year, and all of them expect more volatility than we have been used to.

What this means for you

A quarter like this one is uncomfortable to watch but it is not unusual. A few things are worth keeping in mind.

• Higher rates cut both ways. Bonds and property trusts have lost value this quarter, but cash and new bonds are now paying the best income in years. A diversified portfolio holds both sides of that trade.
• Nobody knows how the AI story ends. The professionals disagree, and that is exactly why we do not build portfolios on a single bet.
• Falls during the year are normal. The Australian market has dropped an average of 13.8% at some point in every year since 1994 and still finished higher in most of them [JPM p.69]. Reacting to the dip is usually what costs people money, not the dip itself.
• Your plan was built for this. Long-term goals do not change because of one quarter’s headlines. If your circumstances have changed, that is the time to talk.

If anything in this update raises a question about your own situation, or you would simply like to talk it through, please get in touch. We are always happy to explain what is going on and what, if anything, it means for you.

Important Information

The information in this publication is general information only and does not take into account your personal objectives, financial situation or needs. It is not intended to be personal financial advice. Before acting on any information, you should consider its appropriateness for your circumstances and speak with your financial adviser. Investment values and returns can rise and fall, and past performance is not a reliable indicator of future performance.

Market and index returns described here are the returns of those markets or indexes, not of any Wealtheon portfolio or any individual client. You cannot invest directly in an index, and index returns do not reflect fees, costs or taxes. Clients hold different investments depending on their circumstances and advice, and individual outcomes will differ.

Where this publication describes what commentators or investment managers expect, those are their views and not forecasts by Wealtheon. They may prove incorrect.

Sources

All figures and forecasts in this update are drawn from the following documents. Page numbers refer to the document as published.

Returns quoted in Australian dollars are unhedged total returns from J.P. Morgan (p.68) unless stated otherwise. Past performance is not a reliable indicator of future performance.

Have a read through, and as always let us know if you want to discuss any of the above further. If you want to meet with us and you aren’t already one of our wonderful clients, you can book directly in with Kristopher here. If you’ve missed any of our recent articles, you can find them here.

You can reach us via email at hello@wealtheon.com.au or via phone on 1800 577 336.